The explosion targeted a bus that was at a terminal near the Cantonment Railway Station, witnesses and officials said.
The blast also hit several nearby shops and buildings, motorcycles and cars.
A fire erupted in the bus, which was reduced to a heap of mangled and blackened metal.
Witnesses told TV news channels that they had seen body parts lying at the site of the blast.
Ambulances rushed the injured to nearby hospitals.
Officials at Jinnah Hospital said they had received three bodies.
Five of the 12 injured were in serious condition and women were among the wounded, they said.
No group claimed responsibility for the blast.
Security forces cordoned off area soon after the explosion.
