(Updates throughout with new quotes and details)

By David Morgan

WASHINGTON, Oct 8 (Reuters) - The U.S. military on Wednesday said 33 Afghan civilians died during August air strikes on a village in western Afghanistan, dramatically raising its estimated toll from an action that has strained U.S.-Afghan relations.

A new military inquiry into the Aug. 22 attack on the village of Azizabad in Herat province also lowered the U.S. estimate for the number of militants believed to have died, to 22 guerrillas from an initial estimate of 30 to 35.

The United States first reported only five to seven civilian deaths in the attack. That outraged Afghans and opened a rift with the Afghan government and the United Nations, which both said more than 90 civilians had been killed.

The military then revisited its investigation after cell phone video emerged showing bodies of people who were said to have died.

The new investigation findings were released by U.S. Central Command in Tampa, Florida, which oversees American military operations in Afghanistan.

"We are deeply saddened at the loss of innocent life in Azizabad," Lt. Gen. Martin Dempsey, the acting Centcom commander, said in a statement.

But Dempsey blamed civilian deaths on insurgents who he said "routinely surround themselves with innocents." The military also asserted that U.S.-led forces had acted on "credible intelligence, in self-defense" and in accord with standard rules of engagement and the law of war.

The new investigation included independent information collected from witnesses to the Azizabad attack and from previous investigations, Centcom said.

Investigators recommended improved cooperation between U.S. forces, the Afghan government, international agencies and non-governmental organizations to assist investigations.

The New York Times, which was first to report on the results of the investigation, said in its Wednesday editions that the civilians killed included women and children.

"There's no other military in the world that goes to greater extent to prevent civilian casualties. This is something that we take very seriously and, when we have allegations of loss of innocent life, we investigate it," Pentagon spokesman Bryan Whitman told reporters.

Human Rights Watch said in a recent report that a surge in the use of air power in Afghanistan had resulted in a high number of civilian casualties, estimating that 119 civilians died in the first seven months of 2008.

U.S. Defense Secretary Robert Gates offered his condolences for the deaths of civilians in coalition air strikes in Kabul last month and acknowledged that the United States needed to work harder to prevent them. (Additional reporting by Paul Eckert and Mohammad Zargham; Editing by Peter Cooney and Eric Beech)

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