The blast occurred in the fruit market in Sector I-11 of the capital, bordering the garrison city of Rawalpindi.
No group has claimed responsibility for the blast yet.
However, media reports said Tehreek-e-Taliban Pakistan spokesperson Shahidullah Shahid has condemned the blast.
He was quoted as saying that the death of civilians in the attack was regrettable.
According to initial information, a 4-5 kg bomb was planted in a crate of guava that was brought to the market.
"We have 18 bodies so far. There are 2-3 more bodies in Holy Family hospital," Pakistan Institute of Medical Sciences (PIMS) Vice Chancellor Prof Javed Akram told PTI.
Asked if the death toll is likely to increase, he said, "Yes, it is likely to increase. There are nearly 70 injured out of which 14 are in very critical condition."
Akram had initially said 23 people were killed but the figure was revised after receiving data from the second hospital.
Security officials and the police have cordoned off the area and the Bomb Disposal Squad is combing the area for other explosive devices.
"Around 1,500-2,000 people were at the market at the time of the blast," Inspector General of Police (Islamabad) Khalid Khattak told reporters outside the blast site. "Explosives weighing around 4 or 5 kg were used."
What was left behind at the blast site was severed body parts and bloodstained clothes amid fruit boxes.
The blast comes a month after the deadly terror attack on a court premises in the federal capital.
Today's attack occurred just prior to the Army's Corps Commanders' Conference.
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