Karzai ordered a full investigation into the "mass killing", which a local official said was punishment to revellers attending a party with music and mixed-sex dancing.
The bodies of two women and 15 men were found on Monday morning by the side of a road in the Musa Qala district.They were either beheaded or had had their throats cut. Some showed signs of beatings or had gunshot wounds.
Men and women do not usually mingle in Afghanistan unless they are related, and parties involving both genders are rare and kept secret.
"This attack shows that there are irresponsible members among the Taliban," Karzai said in a statement on Monday.
The Taliban denied they had taken part in the attack, which Karzai's office said took place on Sunday in Kajaki district in the southern province.
Helmand provincial government spokesman Daoud Ahmadi said that all of the victims had their heads chopped off. He said it was not clear if they were shot first.
Further information has been difficult to access because the area where the killings occurred is largely Taliban controlled.
The BBC reports that some accounts suggest the 17 were killed because they were local government workers.Suggest a correction