"My nephew is one of the civilians killed ... He was going to Bakara market when the explosion hit him," Mohamed Ali Qoje, another witness, said.
Five people have died this week in a series of attacks blamed on Islamic fighters, who were routed by Ethiopia-backed government forces last year.
The fighters have regrouped of late and have carried out ambushes on an almost daily basis.
Peacekeepers hurt
Also on Saturday, a remotely detonated roadside bomb hit a convoy containing African Union (AU) peacekeepers near Mogadishu port.
"We don't have details yet, but a landmine hit one of our vehicles near the sea port and some of our forces were injured," Bahuko Baridgye, spokesman of the AU force, said.
Baridgye said that the injured soldiers were Ugandans who are currently working alongside troops from Burundi in the AU force in Somalia.
"I saw three wounded soldiers lying down. They were bleeding badly," Mohamed Qalinle, a local resident, told Reuters news agency.
Somalia has been mired in civil unrest since the dictatorship of Mohamed Siad Barre ended in 1991.
Fighting in Mogadishu alone killed 6,500 people last year, a local human rights group tracking the death toll has said.
Hundreds of thousands of civilians have evacuated their homes in what the United Nations calls Africa's worst humanitarian crisis.