Thirty others were reported wounded in the attack, which took place around midday in the heavily populated northern Baghdad neighborhood of Al-Shaab. The area consists of homes and about 30 shops, mostly inexpensive restaurants and auto repair shops.
U.S. Central Command said in a statement that U.S. aircraft used "precision-guided weapons" to target Iraqi missiles and launchers "placed within a civilian residential area," and that "most of the missiles were positioned less than 300 feet from homes."
"A full assessment of the operation is ongoing," the statement said. "In some cases, such damage is unavoidable when the (Iraqi) regime places military weapons near civilian areas."
During a briefing at the Pentagon, Maj. Gen. Stanley McChrystal said U.S. forces did not specifically aim at Al-Shaab, "nor were any bombs and missiles fired" there.
That doesn't mean it wasn't a U.S. missile, reports CBS News Correspondent Bob Fuss, only if it was, it went somewhere it wasn't supposed to. McChrystal said it's also possible this was an Iraqi anti-aircraft missile that missed and came back down on the city.
Associated Press Television News video showed a large crater in the street, a smoldering building, demolished cars, and bodies wrapped in plastic sheeting in the back of a pickup truck.
The streets were flooded after water pipes ruptured. Street lights toppled over, trees were uprooted and some cars were overturned. At least half the damaged cars were completely gutted by fire, with only charred metal skeletons left.
Other cars had their wheels blown off by the force of the explosion, while flying shrapnel damaged some nearby apartments.
Flames could be seen rising above the burning shops, mixing with the smoke from fires lit around the city to try to obscure the targets of fighter jets. Men with buckets doused the wreckage of burning automobiles, while women in black chadors grabbed the hands of children and ran from the scene.
Hundreds of people milled around on the street in front of the gutted market. Some of them shook their fists in anger.
"This is barbarian!" shouted Adnan Saleh Barseem. "It's proof that their aggression is collapsing."
Crowds consisting of residents of some of the damaged apartments began to chant: "Oh, Saddam, we sacrifice our souls and blood to you." Some hung out their windows, flashing a V for victory sign in support.
Lt. Col. Hamad Abdullah, head of civil defense in the area, said 14 people were killed and 30 injured. Seventeen cars were destroyed, he added.
U.S. Central Command said it was checking into the report. A spokesman noted that coalition forces take "extraordinary" measures to protect civilians.
Pentagon spokeswoman Torie Clarke said the fact that Iraq placed missile launchers only 300 feet from residents' homes is "a sign of the brutality of this regime and how little they care about civilians."
Clarke said that U.S. war strategists had gone to great lengths to craft precision strikes on military targets in order to keep casualties low. "Any casualty that occurs, any death that occurs, is a direct result of Saddam Hussein's policies," she said.
However, some of these precision weapons have missed their targets before, including two that landed in Turkey.
U.N. Secretary-General Kofi Annan, reacting to reports of the civilian deaths in Baghdad, said he was "getting increasingly concerned by humanitarian casualties in this conflict."
"I would want to remind all belligerents that they should respect international humanitarian law and take all necessary steps to protect civilians," Annan told reporters at U.N. headquarters.
On Monday, Iraq's information minister reported that 194 civilians had been injured so far in the bombing of Baghdad.