A missile fired by Syrian forces killed at least 18 civilians on Tuesday in a residential neighbourhood of the old quarter of Aleppo city, a monitoring group said.

"The missile struck when people were still inside their homes in the Maghayir district. It killed 18 civilians, including one child, and wounded dozens of others," said Rami Abdel Rahman, director of the Syrian Observatory for Human Rights.

"There are many people still stuck in the rubble, and ambulances are going back and forth transporting people," Abdel Rahman said.

Photos published by his Britain-based monitoring group showed crumbling walls surrounded by a sea of dusty cinderblocks.

Groups of men, some wearing the white helmets of civil defence volunteers, trudged through the rubble.

More than 35 homes were destroyed, the Observatory said.

Once Syria's commercial hub, Aleppo is divided between rebel groups entrenched in the east and government troops in the western neighbourhoods.

It has suffered devastating damage as each side tries to dislodge the other.

Rights groups have criticised both sides for indiscriminate attacks on civilians, including with the regime's notorious barrel bombs.

The Observatory said running water was restored Tuesday in Aleppo after a cut of more than three weeks, apparently after an understanding between the regime and Al-Qaeda's affiliate in Syria, Al-Nusra Front.

Al-Nusra, which controls the pumping station in a rebel-held district, had cut off supplies to pressure the government to restore electricity to areas under its control.

The rebels turned the water back on after the regime caved in and restored electricity supplies, according to the Observatory.

Elsewhere in the war-battered country, the Syrian army and its allies from Lebanon's Shiite militia Hezbollah captured more territory inside Zabadani, the last rebel-held town on the two countries' border, the Observatory said.

They seized the Sahel district, driving out the rebels under heavy bombardment.

The two-week-old battle for Zabadani has cost the lives of at least 63 rebels and 21 Hezbollah fighters, according to the Observatory, which has not given a toll for the army.

Syria's conflict, which began in 2011 with anti-government protests, has degenerated into a multi-front civil war that has killed more than 230,000 people.