Military said that it exploded around 4 pm (local time) in Thirumurukkandi area of the former LTTE administrative capital of Killinochchi, Northern Province.
Five civilians, including three women, were injured, military spokesman Brigadier Ruwan Wanigasooriya said.
The civilians had been collecting scrap iron for sale.
They attempted to dismantle a pipe bomb which was an Improvised Explosive Device (IED) that the LTTE used against the security forces, Wanigasooriya said.
Over a million explosive devices including scrap-like objects of this nature have been recovered so far during de-mining in the region.
Civilian population is strongly advised to refrain from handling any scrap-like material, the military said.
The nearly three decades-long civil war in the country came to an end in 2009 after a final battle with the LTTE.