Officials said that it was suicide attack and at least 52 people had been killed and 200 suffered injuries.
"A large number of people were returning after watching Rangers parade ceremony at Wagah border when a suicide bomber blew himself up near one of the exit gates," Inspector General Police of Punjab Police Mushtaq Sukhera said. He said three rangers personnel were also among the dead.
Huge crowds gather every day at the crossing to watch a "lowering of the flags" ceremony, which soldiers from both countries have conducted for decades.
Earlier reports had said it could be a cylinder blast.
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In the wake of Muharram, the police had made strict security measures.
"We had reports that some banned outfits might target Shias, religious personalities, public processions and important buildings," IG Sukhera said.
He said, "Our teams have confirmed that it was a suicide blast". The IG said that the suicide bomber was stopped at the gate of the parade ground at the border and detonated the bomb right when people gathered near the gate.
"The bomb exploded outside a restaurant near a Pakistani paramilitary soldiers' checkpoint at Wagah border," he added.