Hasbaya, about five miles (eight kilometres) from the Israeli border, is inhabited by Muslims, Christians, as well as people from the Druze ethnic and religious minority.
It has seen attacks on its peripheries in recent weeks, but this was the first strike on the settlement itself.
The attack comes as part of an expanding conflict in Lebanon, where Israel has been intensifying air strikes for weeks – as well as launching a ground invasion on border towns and villages in the south.
Lebanese authorities have recorded over 1,700 air strikes across the country in the past three weeks.
Hostilities broke out between Israel and Hezbollah on 8 October last year, the day after Hamas’s attack on Israel that killed around 1,200 people. The Iran-backed armed group has since been firing rockets and drones into Israel in what it described as “solidarity” with Palestinians in Gaza.
Nearly 2,600 people in Lebanon have been killed in the current conflict, according to the country’s health ministry – many of the deaths occurring since Israel began escalating its attacks on 23 September.
Around 60,000 people in northern Israel have been displaced by Hezbollah rocket fire, and the Israeli government has declared returning them to their homes to be a key objective.
In southern Lebanon, satellite imagery examined by the BBC shows Israel’s intensified bombing campaign has caused more damage to buildings in two weeks than occurred during a year of cross-border fighting.
Data shows that more than 3,600 buildings in Lebanon appear to have been damaged or destroyed between 2 and 14 October – about 54% of the total damage.