Police initially thought the blast had been caused by an electrical fault, but later confirmed it was a bomb.
The attack targeted Shias marking the festival of Arbain, one of the main holy days of the Shia calendar.
There have been a number of attacks targeting the minority Shia community, carried out by Sunni militants.
The remote-controlled bomb was planted near an electric pole, Sohail Chattha, the area’s police chief, told Reuters news agency.
He said it was set off as the procession approached.
“There was a loud explosion a few yards from the procession and we all scrambled to get away,” Imran Iqbal, who was in the procession, told Reuters.
“Debris was everywhere, and a cloud of dust engulfed us. Many people died on the spot.”
Cameras captured the sound of the blast – which silenced the mourning chants of the marchers – followed by the sight of a cloud of dust rising into the sky.
As the dust cleared, the wounded dragged themselves from the scene of the blast, their cries filling the air, he said.
Ambulances arrived quickly and rushed the injured to local hospitals.
Angry members of the procession later clashed with the police amid accusations that the security provided had been inadequate.
No organization has yet claimed responsibility for the attack, our correspondent says.
But South Punjab is home turf to Pakistan’s deadliest Sunni militant group, Lashkar-e-Jhangvi, which is notoriously anti-Shia, he adds.
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