The blast in the city's SITE area killed the students aged between 8 and 12 of the Jamia Masjid Tahiri mosque, belonging to the majority Sunni sect.
"Initial investigations show that the blast was caused by hand grenades thrown by unknown persons," police official Tahir Zaman said.
"They were between 15 to 20 children present in the seminary when the hand grenades were thrown," he said.
However, another senior police official Javed Odho said the explosion could have been caused by a planted device.
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Karachi, with a population of 18 million, has witnessed a spate of attacks after the Tehreek-e-Taliban announced they would not be extending their ceasefire agreement with the government.
The TTP spokesman, however, had said no public places would be attacked.
Last week a senior police official, Shafiq Tanoli was killed with three others in a bomb attack near his residence in the city while a blast near a mosque in Karachi's Delhi Colony killed six people and left scores injured.