The blast occurred Saturday in the Kandahar province when a joint U.S.-Afghan patrol arrived in the village of Kauhak to disarm the device.
Afghan police said the casualties included six of its officers, a translator and a U.S. Army sergeant whose name was not immediately released.
"The police were told there is an IED," said Niaz Muhammad, the district police chief. "When they reached the area to defuse it, the bomb exploded."
The area of Kandahar where the bomb went off is considered a Taliban stronghold and is not far from where a U.S. soldier allegedly killed 17 civilians earlier this month.
CNN said it had received an e-mail from the Taliban Friday vowing revenge for the killings. The Taliban said in the message it did not believe Staff Sgt. Robert Bales acted alone in the massacre nor would he be dealt with appropriately in a U.S. court.
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