"A large number of people were returning after watching Rangers flag 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 Pakistani Rangers were also among the dead.
Sukhera said: "The Rangers had made stringent security measures but it was difficult to check suicide bomber".
He said the 20-year-old bomber was carrying 20 to 25 kilogrammes of explosives with him, some of which was hidden inside his jacket.
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.
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The spokesman of the splinter group of the Tehreek-i- Taliban Pakistan Ahmed Marwat said the attack was a reaction to military operation Zarb-i-Azb and Waziristan operation.
Earlier reports had said it could be a cylinder blast.
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," Sukhera said.
He said: "Our teams have confirmed that it was a suicide blast".
"The bomb exploded outside a restaurant near a Pakistani paramilitary soldiers' checkpoint at Wagah border," he added.
"People were returning after watching the parade at Wagah border when the blast took place. Ball bearings were found at the scene," another police official said.