The attack is the second major air strike blamed on the eastern Libyan National Army (LNA) forces loyal to Khalifa Haftar after at least 44 migrants were killed in June, when a detention center in a suburb of the capital Tripoli was hit.
The LNA confirmed a strike late on Sunday on Murzuq, but denied it had targeted any civilians. The LNA had also denied it had hit the detention center but acknowledged increased air strikes on the capital as part of an offensive to seize Tripoli - home to the internationally recognized government - part of the chaos in the oil producer since 2011.
The Tripoli government opposing Haftar said dozens were killed and wounded in Murzuq.
"The air strike resulted in 43 killed and 51 wounded. This is only an initial toll of casualties," Murzuq municipal council member Mohamed Omar told Reuters in a phone interview.
He said the done strike had targeted a town hall meeting where residents were holding discussions after days of clashes between rival tribesmen.
The LNA seized Murzuq at the start of this year as part of an offensive to control the oil-producing south. It later moved out to concentrate forces north where it has been trying to take the capital Tripoli in a four-month campaign.
The LNA said in a statement its strike had targeted "Chadian opposition fighters," a phrase that usually refers to Tebu tribesmen opposing them in the area.
Haftar's LNA, allied to a parallel government based in eastern Libya, has seen its advance on Tripoli held up by robust defenses on the outskirts of the capital, and said it would start heavy air strikes after "traditional means" of war had been exhausted.
Haftar is backed militarily by Egypt and the United Arab Emirates, which see him as a bulwark against Islamists, a narrative supported by some Western countries that have been reluctant to openly criticize the former general under Muammar Gaddafi, who was toppled and killed in 2011.
The European Union said in a statement that the Murzuq strike had "claimed the lives of civilians" and those committing war crimes needed to be brought to justice. But it did not mention the LNA.
The United Nations Support Mission in Libya (UNSMIL) said in a statement issued a day after the strikes that it was "extremely concerned by reports on the continuation of acts of violence in Murzuq, including a number of air strikes." It did not mention the LNA.
Haftar's attempt to capture Tripoli has derailed U.N. attempts to broker an end to the chaos that has prevailed in Libya since the NATO-backed overthrow of Gaddafi.