Sweida Gov. Amer al-Eshi said authorities also arrested another attacker.
While Islamic State still has pockets of territory in eastern Syria and in the country's south, it was driven from all other areas it once held in Syria and Iraq a year ago in separate offensives by the Russian-backed army and a US-backed militia alliance.
Jihadist fighters stormed several villages and staged suicide blasts in the provincial capital Sweida, near one of the few remote pockets still held by Islamic State after it was driven from most of its territory past year. The town, close to the Israeli border in southwest Syria, is the heartland of the Syrian Druze, an insular sect scattered across the Levant region.
The bombings - including a suicide attack at a busy vegetable market and a city square - sparked clashes later in the day between Syrian troops and allied militias and IS militants.
The Observatory said government forces battled militants who stormed the villages from an ISIS pocket northeast of the city.
State news agency SANA published images from the city of the attack's aftermath, showing a victim's remains sprawled on a staircase near a damaged wall.
At least another 30 people were wounded, said the Syrian Observatory for Human Rights, a monitoring group. Abandoned shoes lay in the middle of the road among fruit that had spilled out of cartons.
He said he saw "people bringing in a lot of wounded in their own private cars".
The UN's humanitarian coordinator in Syria Ali Al Zaatari condemned the "terrorist bombing in Sweida city today", saying all civilians should be protected.
SANA said the IS attacks on neighbouring Sweida were an attempt to relieve pressure "on IS remnants facing their inevitable end in the western Daraa countryside".
While the jihadis have lost control of all but a sliver of Syria's eastern desert and pockets of the southern countryside, the group has morphed into an insurgency and maintains sleeper cells inside territory controlled by both President Assad and Syria's rebels.
Initially, the Islamic State took advantage of the instability caused by the more than seven-year-long Syrian civil war to establish its caliphate in 2014.
At least 41 civilians have been killed in air strikes on the jihadist holdout since July 19, the monitor says.
On Wednesday, Russia-backed regime forces pressed their heavy bombardment of the IS-held pocket in Daraa.
In less than a month, Syrian government forces, backed by Russian air power, have been able to seize control of most of southwestern Deraa province, including the provincial capital of the same name.
The fighting is now focussed on removing the Isis coalition Khalid ibn al-Walid army from Quneitra, on the frontier with Israel.
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