The bomb, planted near a hotel in Muzaffarabad colony in the congested Landhi area of Karachi, killed the shop owner and a constable, officials said.
Senior police officials rushed to the blast site but were only able to confirm that it was a planted explosive device of low intensity.
"We are still investigating if the blast is an act of terrorism or linked to the extortion cases in the city as the hotel is always busy and crowded," police official , Umar Khatab said.
Senior Superintendent police Imran Shaukat said a cracker was also thrown at the hotel to cause more panic.
The blast was loud enough to be heard in far away areas and has damaged nearby shops.
A rescue official said some of the injured who were rushed to hospital were in a critical condition as security officials cordoned off the blast site and bomb disposal squad experts began to clear the wreackage. Two women were among the injured.
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Yesterday, two Rangers personnel and a traffic police officer were killed while a third Rangers official sustained injuries in an attack by unidentified armed men on Al Asif checkpost near Superhighway.
No group claimed responsibility for the attack.
Karachi, Pakistan's largest city, has recently been rocked by a wave of sectarian, political and ethnic violence.