Officials say the explosion happened when a motorcycle hit a motorised rickshaw at the busy bus stop, causing a large fire.
Police believe one of the vehicles was carrying explosives but forensic teams are still investigating.
Ball bearings were recovered from the site of the explosion.
Local media quoted officials as saying that a bomb was fitted to the motorcycle, but one police official said that a bomb was remotely detonated.
No group has said it carried out an attack.
Many of the dead and injured were taken to the local Nishtar hospital. The death toll is expected to rise because of the serious nature of some of the injuries.
Pakistan's Prime Minister Nawaz Sharif has expressed his condemnation and sorrow over the incident.