Some media sources reported the children were killed when a missile hit a house in the Panjwai village. Five other people were injured.
However Canadian media reported that the children may have died when an unexploded bomb detonated as they searched for scrap metal in the Panjwai valley. A local police chief said the deaths may have been caused by a Taliban attack.
The Canadian military, whose troops held a live firing exercise 15 km (9 miles) west of Kandahar on Monday, said an investigation team involving local officials would be set up to look into the deaths.
Canada's Globe and Mail news portal cited a Canadian military spokesperson as saying that the Panjwai valley is "Littered with all kinds of unexploded ordnance and mines, and it's a very dangerous area, so anything is possible."
Afghan government officials and legislators expressed their concern over the Pakistan government's recent decision to equip local militant groups in Pakistan's northwest Swat Valley with weapons confiscated in clashes against al-Qaeda. Islamabad recently said the decision was made "to stabilize the situation" in the region.
Earlier on Tuesday, pro-Taliban militants in Pakistan declared a ceasefire and pledged to release prisoners held in the Swat Valley, where fighting has been ongoing for almost two years, in an effort to enforce Sharia law.
Local analysts said Pakistan needed the truce with the Taliban to allow the transit of NATO cargoes to Afghanistan via the violence-torn region. An agreement by the Uzbek and Tajik authorities to open up their territories for the NATO cargo could undermine the Pakistani economy, they said.
Militants active in the troubled valley have destroyed over 190 schools, including some 120 for girls, a local education official said.