Nato is investigating Libyan government claims that it bombed a residential area of the capital, Tripoli, killing several civilians.
Bodies were pulled from a badly damaged three-storey house after the alleged raid in the Souk al-Juma district.
Nato says a surface-to-air missile site in northern Tripoli was successfully hit overnight, but it has previously admitted mistakes in targeting.
It is enforcing a UN resolution to defend Libyans from pro-Gaddafi forces.
If it is confirmed that Nato planes did indeed bomb a civilian area by mistake, serious questions will be raised about the conduct of the military campaign in Libya, says the BBC's Jeremy Bowen in Tripoli.
'Minimalise civilian risk'
Sunday's alleged attack, in one of Tripoli's poorer neighbourhoods, happened shortly after midnight, Libyan officials say.Our correspondent, who was taken to the site by government officials, saw two bodies being removed from the rubble.
Scores of men were working alongside the emergency services, pulling at sections of rubble and looking for bodies.
Locals said an entire family had been killed, though our correspondent was unable to immediately verify this claim.
The level of damage, he adds, looked like the aftermath of an air strike, with concrete floors blown out on to the street - the incident did not look like a government stunt.
He was then taken to a Tripoli hospital where he was shown the bodies of two men, a woman and two babies reportedly killed in the alleged strike.
Libyan officials say nine people were killed in the attack. It is not possible to verify this claim independently.
Deputy Foreign Minister Khaled Kaim said the incident represented a "deliberate targeting of civilian houses".
Nato spokesman Wing Cdr Mike Bracken told the BBC he did not know the exact location of the building Libyans accuse the alliance of hitting.
The building is about a kilometre away from a military airfield, which has often been targeted by Nato.
"Nato deeply regrets any civilian loss of life during [the Libya] operation, and we would be very sorry indeed if a review of this incident concludes that it was a Nato weapon," said Wing Cdr Bracken.
"Our pilots and air crew go to great lengths to minimalise civilian risk, but ultimately you can never make that risk zero in a military campaign.
"Those areas that might have been claimed to be residential by the Gaddafi regime in the past have turned out to be being used as C2 nodes [command and control centres]."The incident came shortly after Nato "regretted any possible loss of life" from an accidental air-strike on a rebel column near the oil refinery town of Brega on Thursday.
A rebel spokesman said it was to Nato's credit that it had admitted that mistake, which he said was understandable given the rapidly shifting front lines of the conflict.
It would be regrettable if civilians had been killed by a Nato air-strike in Tripoli, he added, but praised the alliance's accuracy record throughout the campaign, and the lengths to which it had gone to avoid inflicting civilian casualties.
Nato has flown more than 11,000 sorties since operations began, including almost 4,400 strike attacks against government targets across Libya.
Its mission - to enforce a no-fly zone over Libya to protect civilians using "all necessary measures" short of a ground invasion - began in March in response to Col Muammar Gaddafi's violent response to an uprising.
It was mandated by the UN, and led by France, Britain and the US until the end of March, when Nato took over.
Having initially been given 90 days - which would have run out on 27 June - the mission has been extended for a further 90 days.
Libyan rebels hold a third of the country in the east and pockets in the west, including Misrata, although Tripoli remains under government control.
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