The powerful bomb in a water tanker ripped through a packed bazaar in Hazara town, an area dominated by Shiites on the outskirts of Quetta -- capital of oil and gas rich Baluchistan province -- at around 6:00 pm (1300 GMT) on Saturday.
"We have recovered more dead bodies from the debris of a collapsed building. The death toll has now risen to 79," senior Quetta police official Wazir Khan Nasir told AFP.
Quetta city police chief Zubair Mehmood said the water tanker, which officials said was packed with some 800 kilograms (1,750 pounds) of explosives, was placed near a pillar of a two-storey building, which collapsed in the blast.
"We fear that several people have been trapped inside. Rescue work is ongoing but I see very little chance of their survival," Mehmood said.
Nasir said the bombing "was a sectarian attack, the Shiite community was the target".
A spokesman for the banned Sunni Muslim extremist group Lashkar-e-Jhangvi claimed responsibility for the bombing.
Provincial home secretary Akbar Hussain Durrani said the dead and injured included women and children, and confirmed reports of people trapped under rubble at the site of the collapsed building.
"We fear more casualties. We have announced an emergency in hospitals," he told AFP.
Officials and witnesses said an angry mob initially surrounded the area following the bombing and were not allowing police, rescue workers and reporters to reach the site.
"They were angry and started a protest, some of them pelted police with stones," Durrani said, adding that authorities and medical personnel were eventually able to gain access.
Sayed Qamar Haider Zaidi, a spokesman for Shiite groups in the area, condemned the Pakistani government for not providing protection to the community and announced three days of mourning and protest over the attack.
Baluchistan, which borders Iran and Afghanistan, has increasingly become a flashpoint for sectarian violence between Pakistan's majority Sunni Muslims and Shiites, who account for around a fifth of the country's 180 million people.
At least 92 people were killed and 121 wounded on January 10 when two suicide bombers blew themselves up at a crowded snooker club in an area of Quetta city dominated by the Shiite community.
It was Pakistan's worst sectarian bombing, also claimed by Lashkar-e-Jhangvi, and came after what Human Rights Watch (HRW) said was the deadliest year on record for the country's Shiites, with more than 400 people killed in 2012, mostly in drive-by shootings.
Pakistani Prime Minister Raja Pervez Ashraf late last month sacked the provincial government in Baluchistan after meeting Shiite Muslim protesters demanding protection.
The province is also rife with Islamist militants and hit by a regional insurgency which began in 2004, with fighters demanding political autonomy and a greater share of profits from the region's natural resources.