Police spokesman Sohail Jokhio said the blast was apparently caused when something ignited gas that had accumulated in the sewer beneath a local bank building in the Shershah neighborhood of the port city of Karachi.
The powerful blast destroyed the HBL bank building. Video footage aired by local television stations showed the entire structure of the Shershah branch was damaged. The floor was blown out and furniture was mired in sewage from below.
The impact of the blast damaged several cars parked nearby and threw debris onto a gas station on the other side of the building.
Jokhio said it was not yet clear what ignited the gas but a team of explosives experts had been summoned to investigate.
Dr Sabir Memon at Trauma Center Karachi said 10 people were killed and 13 others were injured, at least three critically. He said several injured were sent to the intensive care unit.
Senior police officer Sarafar Nawaz Shaikh later said two of the injured died at the hospital raising the death toll to 12.
Shaikh said investigators were not ruling out the possibility the explosion was the work of militants. "We will come up with a clear version once the explosives experts complete their job," he said.
Witness Mohammad Sameer said he was in the crowded bank branch moments before the blast but left shortly before the explosion. He said he rushed back to the damaged bank to rescue victims.
"Thank God I left the venue otherwise I would also been among the affected ones," he said.
Many sewage channels in the city have been covered, mostly illegally, by constructing concrete structures over them.
Mukhtar Abro, a local administrator, said illegal construction over the sewage area of the explosion was under notice to vacate and the structures were to be demolished.