Troops forced people from their cars, arrested some, killed others and burned their bodies in eastern Kayah state, the charity says.
Children and women are believed to be among the victims of Friday’s incident.
The military says it killed a number of armed terrorists in the area.
Mass protests have been taking place across Myanmar (also known as Burma) since the military seized control in February.
Elected leader Aung San Suu Kyi and members of her National League for Democracy (NLD) party are among those detained.
Hundreds of people, including children, have been killed.In a statement on Saturday Save the Children condemned the attack, which it says left at least 38 people dead.
It said two staff members travelling home for the holidays after humanitarian work were caught up in the incident and remain missing.
“We have confirmation that their private vehicle was attacked and burned out,” the charity said.
“We are horrified at the violence carried out against innocent civilians and our staff, who are dedicated humanitarians, supporting millions of children in need across Myanmar,” Save the Children’s chief executive Inger Ashing added.
She said investigations into the incident were continuing.
Photos showing the aftermath of the alleged attack in Hpruso township have emerged in which the charred remains of vehicles are visible.The Karenni National Defence Force, one of the largest of the militias opposing the junta, said the dead were not militia members but civilians seeking refuge from the conflict.
“We were so shocked at seeing that all the dead bodies were different sizes, including children, women and old people,” a commander from group told Reuters news agency.
A spokesman for Myanmar’s military said fighting had broken out in Hpruso on Friday after its troops attempted to stop seven cars driving in a “suspicious way”, according to AFP.
Troops had killed a number of people in the ensuing clash, spokesman Zaw Min Tun told the news agency, without providing any further details.