A huge blaze erupted after the explosion on Wednesday, which came just hours after Hillary Clinton, the US secretary of state, arrived in Islamabad, the Pakistani capital, for talks with government officials.
"At least 57 people were killed and more than 150 wounded," Zafar Iqbal, a doctor at the main government hospital in Peshawar, said.
Witnesses say most of the victims were women doing the daily shopping at the Khyber Bazaar.
Inayat Ali Khan, a local journalist at the scene of the blast, said the casualties are increasing.
"The smoke is billowing out of the scene and the fire is not yet extinguished," he told Al Jazeera.
Al Jazeera's Imran Khan, reporting from Islamabad, said local officials say the car drove into a very narrow and packed market place.
"The bomb disposal squad are on the location and are looking for clues on what type of explosive was used," he said.
"From there they'll be able to tell what organisation was behind the bomb making, because they'll be able to link it to previous attacks.
"This goes to show that the security situation in Pakistan is very delicate as the US secretary of state, Hillary Clinton, is in Pakistan for the first time."
Source: Al Jazeera (English)