Israel had hit Khiam a number of times earlier on Tuesday |
A bomb struck the post occupied by the peacekeepers of the Unifil force in the Khiam area, it said.
UN Secretary General Kofi Annan said he was "shocked" at the "apparently deliberate targeting" of the post.
The attack came as Israel said it would control an area in southern Lebanon until international forces deployed.
The force will be discussed at crisis talks to be held in Rome on Wednesday.
US Secretary of State Condoleezza Rice will be at the talks after ending her tour of the Middle East on Tuesday.
More than 380 Lebanese and 42 Israelis have died in nearly two weeks of conflict in Lebanon, which began after Hezbollah captured two Israeli soldiers in a cross-border raid on 12 July.
Protest
The UN in Lebanon says the Israeli air force destroyed the observer post, in which four military observers were sheltering.
It said the four, from Austria, Canada, China and Finland, had taken shelter in a bunker under the post after it was earlier shelled 14 times by Israeli artillery.
A rescue team was also shelled as it tried to clear the rubble.
"I am shocked and deeply distressed by the apparently deliberate targeting by Israeli Defence Forces of a UN Observer post in southern Lebanon," Mr Annan said in a statement from Rome.
Unifil has been operational in the border area since 1978 and is currently 2,000 strong.
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