Police said a car carrying 220 kg of explosives detonated in Qissa Khawani market, damaging at least 50 shops and setting afire many vehicles. The blast occurred when the police official on duty asked a driver of a car to remove it from the site.
They said 13 members the family had come to the city from the adjacent Charsadda district to take part in a marriage function and the blast left nine of them dead.
Doctors at Lady Reading Hospital said six women and four children are among those killed in the blast.
The bomb was triggered with a remote control, Additional Inspector General of Bomb Disposal Squad Shafqat Malik said.
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The market also known as the "storytellers' market" was the site of a massacre in 1930 when British soldiers fired on peaceful demonstrators, killing hundreds.
Pakistani Taliban were generally blamed for such attacks. However, the banned militant group denied its involvement in today's blast that took place in Peshawar, the main city of troubled Khyber Pakhtunkhwa province.
This is the third blast in the city since last Sunday when over 80 people were killed as twin suicide bombers struck a historic church. On Friday, 19 people were killed when a blast took place inside a bus carrying government employees.
Prime Minister Nawaz Sharif, who is in New York for the UN General Assembly, strongly condemned the blast. "Those involved in the killing of innocent people are devoid of humanity and all religions," he said in a statement.