The aircraft tried to target rebels at a roadblock on the southern outskirts of the Red Sea port of Khokha, but the fighters fled to a market where they were attacked, the sources said.
The raid took place at the entrance to the market that sells the mild narcotic leaf qat, which is very popular among Yemeni men.
A military source close to Saudi-backed President Abedrabbo Mansour Hadi said that by fleeing to the market, the rebels had used civilians as “human shields”.
The rebel television channel Al-Masirah also reported the air strike, but give a slightly higher toll of 27 killed and said dozens more were wounded.
The Saudi-led coalition which has been battling Shiite Huthi rebels opposed to Hadi was not immediately available for comment.
The Arab force has come under repeated criticism over civilian casualties in Yemen.
In December, it acknowledged that it had made “limited use” of British-made cluster bombs but said it had stopped using them.
On Thursday, Amnesty International accused the coalition of using banned Brazilian-manufactured cluster munitions in raids on residential areas in northern Saada province, a Shiite stronghold.
On Monday, at least 16 Huthis were killed in a coalition air strike northeast of Hodeida and 23 others were wounded, medical and military sources said.
Khokha is south of Hodeida.