Panic gripped the Defence Housing Authority a little before noon when the loud explosion resonated across Z-Block.
"Eight persons have been killed and 35 suffered injuries," officials said.
The nature of the blast is yet to be determined and bomb disposal squad and forensic expert are collecting evidences from the spot.
"It appears to be a planted device," Punjab police spokesman Niyab Haider told PTI.
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Several vehicles were also damaged in the blast. The injured are being shifted to different city hospitals.
TV footage shows windows of several offices and eateries in the commercial area shattered by shrapnel. Windscreens of cars parked over 100 feet away from the building were shattered and there was considerable damage to the cars' bodies.
Residents were evacuated from buildings.
The Z-block market houses restaurants frequented by young couples.
The latest blast came as security has been tightened across Pakistan after a recent wave of terrorist strikes killed more than 100 people.
Earlier on 13 February, at least 14 people were killed in a suicide bombing near the Punjab Assembly.