"Around 11:00 pm yesterday a group of extremists, well known to the police, threw hand grenades at a crowd that was attending a wake," Public Security Minister Denis Wangao Kizimale told national radio.
"At least 20 people were killed and 11 others wounded and are currently undergoing treatment in hospital," he added.
A source close to the families at the funeral service told AFP that a pregnant women and several children were among the victims.
Members of the local community held an angry street protest today, blaming the attack on Muslims, according to an AFP journalist at the scene.
Even before last night's incident, a recent uptick in violence had seen around 20 people killed in Bangui since Saturday.
Government forces and international peacekeepers have repeatedly clashed with the mostly Christian anti-balaka militia and people looting Muslim areas in the capital.
The former French colony was thrown into chaos after rebels from the mainly Muslim Seleka seized power in a March 2013 coup.
Thousands have been killed and around a quarter of the country's 4.6 million people displaced in the unrest.
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