Residents of Rashkai area in Nowshera district said the aircraft collided before plunging into two houses.
The walls and roofs of the houses collapsed and debris from the aircraft lay strewn over a large area. Police officials and witnesses said all four pilots in the two propeller-driven aircraft were killed instantly.
Three children and a woman were among the injured, said residents of Rashkai, a town located 50 km from Peshawar, the capital of Khyber-Pakhtunkhwa province.
The accident occurred close to the Pakistan Air Force Academy at Risalpur shortly after 10 am.
A PAF spokesman confirmed the incident and said an inquiry had been ordered to ascertain the cause of the accident. The aircraft burst into flames after hitting the ground.
Local residents took the injured to a nearby hospital. A large number of people gathered at the site and helped pull the injured out of the damaged houses.
Army troops and air force teams later cordoned off the area. This was the second crash of a PAF aircraft in a week. On May 11, a Mirage fighter jet crashed near Karachi.
The PAF operates a fleet of French-made Mirage III and Mirage 5 aircraft procured between 1968 and 2000 and Chinese-built variations of the F-7.
Seven Mirage jets have crashed since the aircraft were inducted into the PAF.
Pakistan has been phasing out the older Mirage jets and replacing them with the JF-17 Thunder that was jointly developed with China.