An investigation found that "incorrect information" had passed between the air operations center in Yemen and coalition command, according to the state-run Saudi Press Agency.
"Because of non-compliance with Coalition rules of engagement (ROEs) and procedures, and the issuing of incorrect information a Coalition aircraft wrongly targeted the location, resulting in civilian deaths and injuries," said a statement published by the news agency.
The coalition said it will follow the recommendations of investigators, including a review of the rules of engagement and compensation for the families of the victims.
The admission comes after US condemnation of the attack
and diplomats saying they're reviewing their backing of Saudi Arabia's operations in Yemen. The Saudi-led coalition is fighting to prevent Houthi rebels allied with Iran and forces loyal to Yemen's deposed President Ali Abdullah Saleh
from taking power.
Human Rights Watch had called on the United States to suspend arms sales to Saudi Arabia and pushed for an investigation into possible war crimes after the airstrike.
Missile attacks as payback?
Attempted missile attacks on the USS Mason on Sunday
and Wednesday in Yemen from areas held by Houthi rebels were widely viewed as payback for the funeral attack.
In both attacks, missiles missed the ship and landed in the water, officials said.
The Houthis, a minority Shia group backed by Iran that has taken over the capital, Sanaa, and other areas of Yemen, denied carrying out the missile attacks.
By Thursday, the destroyer USS Nitze
had moved in and hit radar sites along the Red Sea with Tomahawk cruise missiles.
"These limited and proportionate strikes were conducted to protect the personnel and our ships and will preserve our freedom of navigation in this important maritime passageway," President Barack Obama wrote in a letter Friday to the Senate. "The United States stands ready to take action in self-defense, as necessary and appropriate, to address further threats."
A complicated and growing crisis
The Saudi-led coalition, involving several Arab countries, started its military operation in March 2015 after Houthis drove out the US-backed government led by President Abdu Rabbu Mansour Hadi, who is believed to be in exile in Saudi Arabia.
Other factions are also battling within Yemen's borders, including small cells of ISIS fighters, al Qaeda in the Arabian Peninsula, separatist groups and tribal factions.
The United Nations has called the conflict a "humanitarian catastrophe" that has killed about 10,000 people in Yemen and left millions in need of aid.
UNICEF said some 1.5 million children in Yemen are malnourished due to the ongoing civil war.