The coffins of the four men, two women and one young girl – named as Shukria – were flown by Afghan military helicopters from Kabul to their home district of Jaghuri in central Ghazni province, a local tribal elder said.
"Around 5,000 people took part in the funeral ceremony under tight security," 45-year-old Jafar Haidary told AFP.
The seven people from the mostly Shia Hazara ethnic minority were kidnapped from Jaghuri by unknown gunmen in October this year.
Their bodies were found last week in neighboring Zabul province, which is under Taliban control and has been the scene of clashes between rival militant factions. Officials have yet to confirm who is responsible for the killings.
The macabre discovery galvanized protests in both Ghazni and Kabul to demand the government take action in the face of a recent wave of violence against the Hazara.
On Wednesday thousands of people, mainly Hazara, poured into the rainy streets of Kabul to carry the coffins of the seven victims to the gates of the presidential palace.
The demonstrators chanted slogans against both the Taliban and the ISIL terrorist group.
The protest, unusual for Afghanistan in its scale and organization, prompted President Ashraf Ghani to call for calm and vow to avenge the dead.
The three million-strong Afghan Hazara community has been persecuted for decades, with thousands killed in the late 1990s by Al-Qaeda and the Taliban.
There has been a surge in violence against the mostly Shia Hazara this year, with a series of kidnappings and killings that have triggered a wave of fury on social media.