Burundian police spokesman Pierre Nkurikiye said the attack occurred in the Buyenzi neighborhood of Bujumbura today afternoon in a crowded area where car parts are sold.
Senda Selemani, who witnessed the blast, said the grenade was concealed in a bag that was thrown into the crowd by two men on a motorcycle.
Grenade and gun attacks are common in Bujumbura amid unrest stemming from the president's decision last year to seek a third term in office despite violent protests.
Hundreds of people have been killed in Burundi since April 2015, according to the UN.
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