Residents said the marchers were unarmed. U.S. forces said the troops opened fire only after they were shot at by a group of gunmen armed with AK-47 assault rifles.
The shooting outraged local people who, like many other Iraqis, welcomed the removal of Saddam Hussein by U.S.-led forces but now want the American troops to leave. It is likely to fuel anti-American sentiment elsewhere in Iraq.
U.S. helicopters hovered overhead as angry mourners buried the dead on Tuesday. The white walls of houses near the school were pock-marked by bullets, bullet-riddled cars stood by the roadside and traces of blood marked the ground.
"Our soul and our blood we will sacrifice to you martyrs," hundreds of mourners chanted as they carried at least four simple wooden coffins shoulder-high through the town.
Ahmed Ghanim al-Ali, director of Falluja general hospital, confirmed the death toll was at least 13 and said the hospital had carried out about 30 operations in the past few hours. "Some were wounded by shots. Some were wounded by shrapnel," he said.
"They are stealing our oil and they are slaughtering our people," said Shuker Abdullah Hamid, a cousin of one of the victims, 47-year-old Tuamer Abdel Hamid.