The explosive device was planted in a vehicle parked at Kashmir Chowk in Parachinar, the main town of Kurram Agency.
The explosion killed 10 people instantly, officials said.
The 40 injured, some of them in a serious condition, were taken to a nearby state-run hospital.
Security forces cordoned off the area and launched a search operation.
The blast snapped the power supply to the area and panic gripped the town.
No group claimed responsibility for the attack.
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Kurram Agency has been rocked by sectarian violence between Shia and Sunni tribesmen over the past five years.
Taliban fighters who infiltrated the region have been backing the Sunnis.
Hundreds of people have died in clashes between the rival tribesmen and militant violence.
Prime Minister Raja Pervez Ashraf strongly condemned the bombing in Parachinar and directed authorities to provide the best medical treatment to the injured.