Five people were killed and 50 were injured in the blast, which demolished a restaurant in the Old Anarkali area of Lahore.
A foot-deep hole was left in the floor of restaurant, which led police to suspect a time bomb had been planted, Dawn News said Sunday.
Lahore, capital of the Punjab region, had largely avoided the long-running wave of violence that has occurred in other Pakistani provincial capitals over the years, Dawn News said.
The explosion came one month after the PML-N government came into office in Punjab, and police officials warned the city to be on guard for "more acts of terror."
GEO News said police were out in force Sunday, guarding buildings and keeping a close eye on the city's Sunday bazaars.
Old Anarkali is home to several open-air restaurants catering to blue-collar patrons. It is also located inside a high-security area of the city where government offices and the main police station are located.