The explosion struck the Zurmat district of Paktia province Sunday evening, district chief Gulab Shah said. There was no official death toll in the Taliban-held area, but a witness said he counted seven corpses and 14 wounded.
The witness, who asked that his name not be used because he feared for his personal safety, said many of the victims appeared to be women and children.
Earlier Sunday, the Interior Ministry said there have been 173 civilian deaths in violence in Afghanistan from March 21 to April 21, marking a 33 percent increase over the similar time period last year. A recent quarterly report by the U.S. office overseeing Afghanistan's rebuilding confirmed an increase in civilian deaths.
The ministry did not provide a breakdown of who was responsible for the fatalities.
Civilian deaths at the hands of U.S. and other international forces are highly sensitive in Afghanistan, although the United Nations says the Taliban are responsible for most civilian casualties. Still, the backlash could undermine U.S. strategy ahead of a summer military operation in Kandahar, a key southern city that is the spiritual home of the Taliban.
The goal of the U.S.-led operation is to flood in troops, rout the militants, and rush in new governance and development projects to win the loyalty of Kandahar's half-million residents.
Public outrage over civilian deaths prompted the top NATO commander, U.S. Army Gen. Stanley McChrystal, last year to tighten the rules on the use of airstrikes and other weaponry if civilians are at risk.
There are fears the problem could get worse with 30,000 U.S. and NATO reinforcements heading to Afghanistan as part of a military buildup to take on the Taliban in the south.
Several recent operations have sparked protests in Afghanistan.
On Thursday, the French military said its troops mistakenly killed four Afghan civilians and seriously injured one during a clash with insurgents east of Kabul on April 6. On April 20, NATO troops fired on a vehicle that approached their convoy in eastern Afghanistan, killing four unarmed Afghan civilians.
"Preventing Afghan casualties remains our goal despite recent setbacks," said Lt. Col. Todd Vician, a NATO spokesman in Kabul. He added that military operations have increased this year, with many taking place in population centers.
Also Sunday, a British service member died after an insurgent attack in the Sangin district of Helmand province in southern Afghanistan, the Ministry of Defense announced.
On Saturday, NATO said another service member was killed after an "indirect-fire attack" in eastern Afghanistan. The victim's nationality was not immediately released.