There are two things here I'd be thinking about -- whether this is possibly pain related though it may not be immediately obvious to you (it isn;t always easy to tell), and also, whether there's the right environment at the moment for mixing cavaliers and children (for both the cavalier and the children
) as a lot of people do end up with problems due to some potentially serious misunderstandings about how dogs and kids should mix, especially a breed as small as a cavalier, and most especially, a puppy which is forming its most important social bonds and laying down its fear responses and so forth at the age yours is. I don't know how old the children are, but if they are under about 9, they shouldn;t be interacting directly with a puppy on the loose except under the most controlled circumstances... kids running around a small puppy can overexcite it and cause problems in their own right, including biting, and I'd also wonder if somethi ng like this might have been going on to get the puppy into a state where it reacted as it did due to overstimulation?
For the first thought: Most puppies hate being groomed and you'll need as Cathy notes, to try and gradually work him towards accepting and perhaps even enjoying this. He is still of an age where he might be puppy nipping -- you can search for previous discussions of this as there's lots of advice already on this topic -- but from the sound of it this seems an overreaction by the puppy to what you were doing unless there was an underlying cause. Your decsription almost makes it sound like a fit or a severe reaction where the puppy lost total control of himself and this would be of concern of course. I stress again it is very hard to offer advice without seeing what you might mean by a bite and his reaction (which is why it is best to get professional advice for anything that is really worrying, and have a behaviouralist view the pup -- or talk to your breeder as a good breeder can always give advice) and whether it was more a puppy nip or a serious bite -- as perspectives can differ. But if he bit hard I'd really be wondering whether he has some underlying level of discomfort -- some sort of pain -- and I'd be thinking to mention this to a vet on his next visit and I'd be watching for other signs that he might be sensitive around the head or other areas your were handling. If this is the case then there are a number of potential causes you'd want to be looking into.
The second point -- kids and cavaliers -- this is a breed that CAN be great with kids (as can most breeds) but an adult needs to be in charge. Any dog should never be left alone with children and all interactions of young children, under age 10 or so, should be done with kids sitting on the floor while totally supervised by adults. The puppy should not be running around while kids are running around, for example, for reasons noted already.
Several aspects of this were recently discussed here, which should be a helpful thread for you:
http://www.cavaliertalk.com/phpBB2/viewtopic.php?t=3087