The blast, blamed on Islamic militants from the ousted Taliban regime, shattered windows in the hotel building where a Reuters reporter was staying and he later saw 20 people wounded in hospital, seven of whom appeared in critical condition with multiple injuries.

A police officer at the scene said the blast may have been caused by explosives rigged to a bicycle. Victims could be seen lying bleeding on the street in Kandahar's main market, the Chowk-e Shahidan, which was crowded with people at the time.

Kandahar police chief Mohammad Hashim immediately pinned the blame on Taliban guerrillas and their allies. "This is the work of Taliban and their foreign supporters," he told reporters.

Last Wednesday, two US soldiers were wounded, one seriously, when a renegade Afghan policeman threw a grenade at a US military vehicle in the same part of Kandahar.

Another policeman and a local bystander were also slightly hurt in that attack as four US military vehicles drove through.

Kandahar was the seat of power of the Taliban regime overthrown by US-led forces in late 2001. It and the surrounding province have been the scene of a number of attacks blamed on the guerrillas and their militant allies since then.

Saturday's blast came a day after the Taliban threatened to step up attacks ahead of a Grand Assembly or Loya Jirga in Kabul later this month to approve a new constitution.

Taliban commander Hafiz Abdul Majeed, a member of the 10-man Taliban leadership council, told Reuters on Friday the Loya Jirga would be a "drama" staged by US occupiers and anyone attending deserved to die.