The blast ripped through the main market in the town of Darra Adam Khel. The target appeared to be members of a pro-government militia created to fight Taliban militants.
"The death toll has risen to 16 and 30 others were wounded," a local government official said yesterday.
No group immediately claimed responsibility, but the Pakistani Taliban have staged similar attacks in the same region to punish elders for backing security forces in offensives against militants.
The explosives-laden car was parked near the office of one of the "peace committees" formed by local elders trying to rid the area of militants, regional government administrator Fakhruddin Khan said.
It was unclear how many people were in the office at the time, but he said those killed included tribal elders and passers-by.
He said the attack destroyed 35 shops and eight vehicles.
The dead and wounded, including some who were in a critical condition, were transported to hospitals in the north-western city of Peshawar.
The region, which is in the Khyber Pakhtunkhwa province, is well known for its weapons market, selling guns made by local craftsmen.
Provincial information minister Mian Iftikhar Hussain blamed the Pakistani Taliban for the attack, noting the fundamentalist Islamic movement had also tried earlier in the week to kill a 14-year-old girl who is an advocate of education for girls and a critic of the Taliban.
Malala Yousufzai was shot in the head as she boarded a school bus in the former Taliban stronghold of Swat on Tuesday. Authorities have offered a reward of more than $100,000 for the capture of her attackers.
The shooting sparked outrage around the country and the world generating an outpouring of support for Yousufzai.
The Taliban leadership decided two months ago to kill her – and then sent out a hit squad to carry out the job, a spokesman for the Taliban's Swat Valley chapter told reporters by telephone. He said she was warned three times to stop her activities promoting "Western thinking", but she did not.
He said the last warning was conveyed a week ago.
Hussain urged the federal government to consider launching a "decisive operation against terrorists" to eliminate the militants.
He said: "These Taliban have killed our innocent people in so many attacks. They are still killing our people.
"Instead of wasting time, we should hit them back, and we should do it as early as possible to save the precious lives of our innocent girls like Malala Yousufzai."
Pakistan's military, one of the biggest in the world, has launched several offensives against the Taliban and other militant groups seeking to topple the United States-backed government.
But the operations, which have focused on Taliban strongholds in the unruly ethnic Pashtun tribal belt along the border with Afghanistan, have so far failed to break the militant networks.
That is one reason why the government began encouraging tribesmen to revive traditional militias to take on the Taliban and rally their communities behind the state.