Police initially thought the blast had been caused by an electrical fault, but later confirmed it was a bomb.
The attack targeted Shias marking the festival of Arbain, one of the main holy days of the Shia calendar.
There have been a number of attacks targeting the minority Shia community, carried out by Sunni militants.
The remote-controlled bomb was planted near an electric pole, Sohail Chattha, the area’s police chief, told Reuters news agency.
He said it was set off as the procession approached.
No organisation has yet claimed responsibility for the attack, our correspondent says.
But South Punjab is home turf to Pakistan’s deadliest Sunni militant group, Lashkar-e-Jhangvi, which is notoriously anti-Shia, he adds.
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