It was a rare acknowledgment of wrongdoing by the Myanmar military during the operation it launched in northern Rakhine in response to Rohingya militant attacks on August 25.
Although the Rohingya consider themselves an ethnic minority of Myanmar, numerous Buddhist majority consider them illegal foreigners from Bangladesh. The Myanmar government has consistently denied all accusations.
"It is true that both the villagers and security forces admitted they killed the 10 Bengali terrorists", the statement read.
Rohingya Muslims who fled a village where Myanmar has admitted its forces helped massacre 10 people said Thursday the victims were all civilians, not fighters as asserted by the Tatmadaw.
In a statement, the military said that due to the fighting they could not transport the men so the detainees were executed by soldiers and local villagers instead of being handed over to police.
"It was found that there were no conditions to transfer the 10 Bengali terrorists to the police station and so it was chose to kill them", the military said, referring to the findings of the investigating team.
Last month Doctors Without Borders said at least 6,700 Rohingya were killed in the first month of the army crackdown on rebels in Rakhine - the highest estimated death toll yet of violence that erupted on August 25.
After being informed that there was a mass grave found near Inn Din village's cemetery, a team of five investigators led by Lt-Gen Aye Win from the office of commander-in-chief of Defense Services probed the case in December past year. The use of the term "Bengali" is the commonly used term for Rohingya in Burma as it implies they are illegal immigrants from Bangladesh, despite them living in Burma for generations.
In the past, the military has retaliated against Rohingya villages following such attacks.
The villagers assisted in the execution, according to the statement, because they wanted revenge on the Rohingya militants who had killed their family members in the past.
The military said legal action would be taken against members of the security forces who violated their rules of engagement in killing the 10 suspected insurgents, and against ethnic Rakhine Buddhist villagers who were also involved.
James Gomez, Amnesty International's Southeast Asia and Pacific director, said the acknowledgement marked "a sharp departure from the army's policy of blanket denial of any wrongdoing".
The U.N. and other groups accuse the military of widespread atrocities against Rohingya, including killings, rapes and the burning of homes.