"These terrorists were arrested from Kunwari colony in Manghopir and we have recovered atleast 60 kilograms of explosives and other weapons from them," senior CID official Umar Khatab told reporters.
He said the five terrorists were planning to attack processions on the 10th day of Muharram known as "Ashura".
"We have averted a major terrorist plan and it is clear that these militant groups have been active to carry out subversive activities during Muharram," Khatab added.
The blast took place minutes after the popular flag- lowering ceremony at the main Indo-Pak land border crossing.
Al-Qaeda affiliated militant group Jandullah, which was behind a suicide bombing that killed at least 78 Christians at a church in Peshawar September last year, has claimed responsibility for the attack.
Karachi is the largest and most populous metropolitan city in Pakistan and the capital of Sindh province.