The fighter plane crashed into the bus terminal in the Yousuf Goth neighbourhood and those killed included both pilots and two civilians.
Sajid Sadozai, a senior police official, said two buses parked at the terminal were destroyed while another was damaged. A number of nearby buildings also suffered structural damage.
Eight people on the ground were injured in the incident.
"The injured included people who were near the bus terminal when the crash took place," he said.
The spokesman said a Wing Commander and a Squadron Leader were on routine operational training mission when the incident happened.
TV footage showed plumes of black smoke rising from the site as rescue teams rushed in.
The terminal also caught fire but it was controlled by the fire fighters.
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