The blast occurred near the imambargah in Abbas Town area of Pakistan's largest city.
The explosion, which was heard from several kilometres away, damaged several nearby buildings, witnesses said.
Three persons were killed by the blast, Sharfuddin Memon, advisor to the Sindh government on home affairs, told reporters.
Another person later died at a hospital, according to police.
"The bomb was detonated by remote control," senior police official Chaudhary Aslam said.
Officials at three hospitals said they had received more than 20 injured people.
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A spokesman for the Pakistan Rangers said five paramilitary personnel were injured and one of them was in a serious condition.
A 'majlis' or religious gathering had been organised at the imambargah at the time of the blast.
Witnesses said the bomb was hidden in a motorcycle that was parked near the imambargah since the morning.
The witnesses said the blast was followed by intense firing in the area.
The blast also snapped the power supply, plunging the area into darkness and affecting rescue operations.
No group claimed responsibility for the attack.
The bombing occurred despite extensive security arrangements put in place for the Islamic month of Muharram, which has often been marked by attacks on the Shia minority in the past.
Prime Minister Raja Pervez Ashraf expressed grief and anguish at the loss of lives in the bombing.
He condemned the incident and said such cowardly acts would not deter the firm resolve of the government to eliminate terrorism and militancy.
Soon after the blast angry protesters took to the streets and started pelting stones on passing vehicles.