The blast occurred in Qissa Khawani bazaar near a police station here.
Media reports say the blast took place in a car, parked near the police station. They said explosion was detonated with a remote device.
Rescue officials have reached the blast site and taken the injured to Lady Reading Hospital where an emergency was declared.
Many of the injured are in critical condition.
A fire erupted soon after the explosion and at least eight shops were also damaged.
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The explosion occurred at a time when the shops were just opening.
This is the third blast since last Sunday when over 80 people were killed when twin suicide bombers struck at a historic church here.
On Friday, 19 people were killed when a bomb blast took place inside a bus carrying government employees.