The blast that took place at 9.50 AM in the general class compartment of the train in Shajapur district of the state.
The railways has viewed the incident seriously and beefed up security, according to a statement issued by the Railway Ministry.
Railway Board Member (Traffic) Mohd Jamshed spoke to the Madhya Pradesh chief secretary and the Western Railway general manager and coordinated with the state DGP after the incident.
Senior railways officials, including the Ratlam divisional manager, visited the spot.
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Madhya Pradesh Home Minister Bhupendra Singh told PTI in Bhopal that "the initial investigation suggests the blast is a terror attack and investigation is underway to unravel the conspiracy behind the incident."
After the blast, the affected coach was segregated from the train and fire extinguishers were used to control the blaze.
According to railways data, 40 incidents, including that of sabotage, have been reported this year as compared to 45 in 2016.
All the passengers of the affected train were taken to Ujjain by another train. After the police clearance, the track has been certified safe for train travel and traffic resumed at 15.12 PM.