The official said at least 20 people had been wounded in the blast in the market in the Khyber region, near the border with Afghanistan, and the death toll could rise.
Pakistani television news channels broadcast pictures of wrecked cars and pick-up trucks damaged in the blast, which took place near rows of shops.
The attack occurred near the office of a senior government official but it was unclear if he was the target of the attack, the news channels reported.
There was no immediate claim of responsibility but militants fighting the Pakistani state have launched numerous attacks in ethnic Pashtun areas along the Afghan border.
They have frequently targeted government and security officials and forces.
The security official said it was not clear if the blast had been caused by a suicide attacker or a planted bomb.
On Saturday, a team of suicide bombers and gunmen attacked the airport in the region's main city of Peshawar.