PESHAWAR: The explosion destroyed vehicles and shops near a bus stop in Ustarzai, a small mountain town in the northwest which lies between the garrison city of Kohat and Hangu, another Shiite-dominant town with a history of sectarian violence, police said.

The area was packed with shoppers buying food and delicacies for the weekend and the Muslim Eid al-Fitr holiday, which Pakistanis expect to start on Monday with the sighting of the new moon after the fasting month of Ramadan.

"A suicide bomber blew up a car filled with explosives in the market. Ten people were killed and many wounded," said Ali Hasan, a local police officer on the ground in Ustazai.

Police spokesman Fazal Naeem in nearby Kohat said: "We have recovered 14 dead bodies. Many people were wounded. The suicide bomber was sitting in a car."

Police said the attack occurred near a bus stop where passenger buses and coaches arrive and depart from other towns across northwest Pakistan, where the United States has branded Islamist militants an existential threat.

Police said the explosion caused heavy damage and officers were frantically organising efforts to rescue the dead and wounded.

North West Frontier Province (NWFP) police spokesman Riaz Ahmad said one report attributed the blast to a suicide bomber who blew up his explosives-laden vehicle in the bazaar, but there was no final confirmation.

Prime Minister Yousuf Raza Gilani condemned the "cowardly act of terrorism" and expressed grief over the loss of life, his office said in a statement.

Gilani "expressed the government's determination to stamp out the menace of terrorism and militancy from the country," it said.

In April, Pakistan launched a military offensive against the Taliban in the northwestern districts of Buner, Lower Dir and Swat after militants advanced to within 100 kilometres (60 miles) of the capital Islamabad.

The military says it has cleared the area and in the last week claimed three major arrests of wanted commanders in Swat although skirmishes have continued, raising the prospect that many militants are hiding in the mountains.

Government troops have also launched military operations against a local Taliban-linked warlord in the semi-autonomous Khyber tribal region, which lies on the main supply route for Western troops in neighbouring Afghanistan.

The United States says Islamist fighters are hiding in the Pakistani mountains near the Afghan border, plotting attacks on Western targets and crossing the porous frontier to attack foreign troops in Afghanistan.

Taliban and Al-Qaeda rebels are believed to have fled Afghanistan after the 2001 US-led invasion, carving out boltholes and training camps in the remote mountains.