The latest blast to rock the restive area came as security forces across the archipelago nation were on high alert for potential Islamic extremist attacks during the New Year period.

Mostly Christian shoppers had thronged the stall to buy pork, which is forbidden for Muslims, for New Year's Eve celebrations later Saturday night, police said.

National police spokesman Paulus Purwoko told reporters that three victims died at the bomb site and four died later in hospital.

He said that the blast did not bear the hallmarks of on-the-run Malaysian militant Noordin Mohammad Top and his group "because they normally target foreigners."

Palu police officer Rawang confirmed the toll had risen from an earlier six to seven, and said the number of injured was at 48.

Television footage showed helmeted police along with survivors carrying the bloodied victims, many of whom were Christians, to cars amid the chaos. The injured were ferried to four nearby hospitals.

"We have sealed the area for fears of more unidentified bombs," Rawang said soon after the blast. "Most of the victims suffered injuries to their legs because of the shrapnel from the bomb."

Provincial police spokesman Rais Adam told AFP that a bomb squad unit had defused a second bomb near the site of the first blast.

Indonesia is the world's largest Muslim-populated nation, but Christians and Muslims live in roughly equal numbers in parts of the eastern island chain of Sulawesi and in Maluku.

President Susilo Bambang Yudhoyono condemned the attack and immediately ordered an investigation, his spokesman Andi Malarangeng said.

Yudhoyono had also asked top security minister Widodo Adisucipto and national police chief Sutanto to "investigate whether this bombing is related to the previous attacks" in the region, Malarangeng told AFP.

National police deputy spokesman Anton Bahrul Alam told AFP that a special team of detectives had left for Palu from Jakarta to probe the blast, but said no fresh police reinforcements would be sent.

Meanwhile some 18,000 security forces on guard over the holiday period were "trying to prevent attacks such as the Palu bombing from taking place in other cities as people are gearing up for the New Year's party," he said.