Some reports said a suicide attacker detonated the bomb in the town of Darra Adam Khel near the Khyber tribal area.
It was apparently aimed at a pro-government militia set up to fight the Taliban, local security officials said.
Some of the wounded were being taken to hospitals in other towns, because local facilities could not cope.
Some were being taken to Peshawar, about half-an-hour’s drive to the north.
Officials said no group had claimed responsibility for the bombing, but previous attacks in the area have been blamed on the Taliban.
President Asif Ali Zardari strongly condemned the blast. In a condolence message he said the incident showed that extremists had no regard for human life.
The blast occurred outside the office of the local “peace committee” – a group of militants who used to fight with the Taliban but switched sides and now support local elders and the government.
At least 20 nearby shops were also badly damaged in the explosion, Pakistan’s Dawn newspaper reported.
It was not immediately clear how many of the victims were members of the peace committee and how many were local people going about their shopping on a Saturday morning, local government official Fakhar-ud-Din told the AFP news agency.
Darra Adam Khel is a small town on the edge of the ethnic Pashtun tribal belt along the border with Afghanistan.
The government has fought a long campaign to bring the region, which is a haven for militant groups, under its control.
Darra Adam Khel has been a centre for arms trading, with locally made weapons on sale openly at stalls in the town.
A suicide bomb attack on a mosque in the town two years ago killed more than 70 people.
Prayers were held in schools across Pakistan on Saturday for a young victim of the Taliban, 14-year-old Malala Yousafzai, who was shot this week in the Swat Valley.
The girl, who had campaigned for the right to an education, was picked out by name by an armed man on a bus, and shot in the head.
A military spokesman said she was still on a ventilator in hospital on Saturday and that the next 36 to 48 hours would be critical.