The observers were not among the dead or wounded, activists said.
"The front of a U.N. car took a direct hit," Idlib-based activist Fadi al-Yassin, who witnessed the attack, told The Associated Press. "Everyone ran in panic but the observers stayed in the car. People tried to talk to them but they wouldn't even open their windows."
Just minutes earlier, Syrian forces fired on a funeral procession, activists said. Al-Yassin and the Britain-based Syrian Observatory for Human Rights estimated the death toll could be as high as 20 people. It was impossible to independently confirm the toll.
"This is a real massacre and it took place in the presence of U.N. observers," Rami Abdul-Rahman, head of the Observatory, said of the attack on the funeral. He called for an international investigation and for the monitors to state publicly what they saw.
A video posted by activists online appeared to show the exact moment the U.N. vehicle was struck. The video shows two white vehicles clearly marked "U.N" with people milling around it, and two others parked a few meters behind.
The blast blew off the front of the first vehicle and sent up a plume of smoke as people frantically ran for cover. The four cars are then seen slowly driving away.
Ahmad Fawzi, a spokesman for Syria's special envoy Kofi Annan, confirmed the observers were caught up in the country's violence.
"The U.N. Mission in Syria reports that shortly after 2 p.m. local time today, a (U.N.) convoy of four vehicles was struck by an explosion from an improvised explosive device," Fawzi said in a statement. "Three U.N. vehicles were damaged. No U.N. personnel were injured."
The Syrian uprising began in March 2011 with mostly peaceful protests calling for change, but a relentless government crackdown led many in the opposition to take up arms. Some soldiers also have switched sides and joined forces with the rebels.
World powers have backed a peace plan that was put forward by Annan, but the bloodshed has not stopped. More than 200 U.N. observers have been deployed in Syria to oversee the truce between the government and armed rebels.
The U.N. estimates the conflict has killed more than 9,000 people.
U.N. spokesman Hassan Seklawi said 211 military observers as well as 66 civilian U.N. staffers working for the observation mission have been deployed in the country, with teams based in major cities such as Aleppo, Hama, Idlib, Deir el-Zour, Daraa and Homs.
The number of military observers is expected to reach the maximum of 300 later this month.