It is the latest incident in the region that threatens to reignite fighting with neighboring Afghanistan.
The blast at the crowded Naurang Bazar caused panic on the streets as people rushed to help the wounded and emergency vehicles raced to the site, Reuters reported. Visuals from the scene showed damaged shopfronts and a mangled vehicle.
The explosion follows a car bombing and ambush at a police post in the nearby Bannu district on Saturday that killed 15 police officers.
Pakistan blamed Afghanistan-based militants for the weekend attack and delivered a strong protest to Kabul. The Afghan Taliban government said on Tuesday that the allegations were "baseless".
"The Islamic Emirate once again clarifies its position that Afghan soil will not be used against any country, and no one will be allowed to carry out activities that would harm the security and stability of the region," Taliban government spokesperson Zabihullah Mujahid said in a statement.
In February, Islamabad launched airstrikes on Kabul, saying it was targeting militant strongholds used to orchestrate attacks on Pakistan, sparking the worst fighting between the two countries in years. The Taliban has denied harboring militants and said that militancy in Pakistan is an internal problem there.
Police official Sajjad Khan said that 10 people were killed in Tuesday's explosion at the market, including eight civilians and two police officers. Police said an improvised explosive device (IED) had been used.
The emergency response agency Rescue 1122 said around 30 people were wounded at the market, which is part of the town square.
Those with serious injuries had been rushed to hospitals in Bannu, it added in the statement.