More than 40 other people were wounded in the blast, Hameedullah Khan, Al Jazeera's producer in Pakistan, said, citing Mian Iftikhar Hussain, the information minister for the NWFP.
Hazrat Ali, a shopkeeper wounded in the blast, said the explosion came from a car parked near his shop.
"I was buying something before closing my shop. A car was parked on the other side of the road and all of a sudden there was a huge blast," he told the AFP news agency.
"There was smoke and darkness everywhere. I passed out."
Rising toll
Al Jazeera's Kamal Hyder, reporting from the Pakistani capital, Islamabad, said the death toll could rise.
"We're told this was near a market frequented by women because of the clothes that are sold in that particular area," our correspondent said.
"At this moment these are preliminary reports .. because communications have broken down.
"Police are trying to piece together what happened exactly, but there are fears that the casualties might be much higher than reported earlier."
The blast, the third in or around Peshawar in as many days, comes as Pakistan presses ahead with a military offensive against the Taliban, most recently in South Waziristan.
Anti-government Taliban fighters have struck numerous times in Pakistan in recent weeks, killing more than 300 civilians and soldiers.
The attacks appear to be aimed at weakening the government's resolve to continue its military operation in South Waziristan, their main bastion, on the Afghan border.
More than 100 people were killed last month alone in a car bombing in Peshawar that was marked as the deadliest attack in the country in two years. The Taliban said it did not carry out the October attack in Peshawar.