LASHKAR GAH, Afghanistan (Reuters) - Angry Afghan villagers protested on Thursday against what they said was the killing of 11 civilians in an air strike by foreign troops, but local authorities said only fighters were killed.

Civilian casualties caused by Western forces have stoked anger toward foreign troops, which the NATO commander, U.S. army General Stanley McChrystal, says undermines the Western mission.

Some 300 protesters paraded dead bodies of the air strike victims on streets of Lashkar Gah, capital of restive southern Helmand province, where 10,000 U.S. Marines and 9,000 British troops have fought the war's heaviest battles.

A spokesman for Helmand's governor confirmed an air strike had taken place, saying it killed eight Taliban insurgents. A press officer for NATO-led forces in Kabul said troops had conducted an operation in the area, but gave no further details.

Demonstrators chanted slogans against the government and the United States. A Reuters reporter in Lashkar Gah said the dead bodies shown at the demonstration included young male teenagers.

"Are they Taliban or civilians?" asked one demonstrator in tears.

Protesters said the victims were killed in the raid late on Wednesday while working in a wheat field outside the city. Some women were among the demonstrators, a rarity in conservative southern Afghanistan.

"Death to the governor, down with the government and the United States," said Khan Mohammad, leader of the protesters, who said he had lost four of his nephews in the bombing.

Civilian casualties have been a main source of friction between President Hamid Karzai and the foreign troops led by NATO and the U.S. military in recent years.

McChrystal has issued new orders designed to reduce civilian deaths by placing limits on the use of air power. Foreign troops often rely on air power for hunting the Taliban, toppled from power by U.S. and Afghan forces in 2001.

The United Nations says 1,500 civilians were killed in the first seven months of this year. More than two thirds were killed by Taliban fighters, and 23 percent were killed by Western and pro-government forces, it says. The rest could not be attributed.

(Reporting by Abdul Malik in LASHKAR GAH, Ismail Sameem in KANDAHAR; Writing by Sayed Salahuddin; Editing by Jerry Norton0