The attack by an armed group against local residents occurred on Tuesday, the residents said, in the Amuru district, around 370 km (230 miles) west of the capital Addis Ababa.
They said the victims were all Oromos and described the attackers as members of a volunteer militia known as Fano, mostly composed of ethnic Amharas, Reuters reported.
Clashes between the Oromo and Amhara, Ethiopia's two largest ethnic groups, have been rising in recent months.
Oromiya has experienced years of violence amid accusations of neglect by the federal government in Addis Ababa.
Oromos account for more than a third of Ethiopia's total population of around 110 million.
Both residents said the attackers, carrying rifles and numbering between 150-200 men, were speaking Amharic and wore a mish-mash of uniforms.
Neither Amhara nor Oromiya's regional administrations' spokesmen responded to requests for comment.
ZZ/