Four boys were among the dead and 30 other people were injured when the remote-controlled bomb packed with ball bearings exploded on the outskirts of Dera Ismail Khan city in Khyber Pakhtunkhwa province, police said.
The attack on Shi'ites, a minority in Sunni-dominated Pakistan, came as they marched to mourn Prophet Mohammed's grandson Imam Hussain during the holy month of Muharram which culminates on Sunday in Ashura, the group's holiest day of the year.
The Pakistani Taliban claimed responsibility.
"We carried out the attack against the Shi'ite community," spokesperson Ehsanullah Ehsan told AFP by telephone from an undisclosed location. "The government can make whatever security arrangements it wants but it cannot stop our attacks."
The Taliban had dispatched more than 20 suicide bombers across the country for attacks on the minority community, he said.
The blast followed another suicide attack - also claimed by the Pakistani Taliban - that killed 23 people at a Shi'ite procession in the garrison city of Rawalpindi Thursday, the country's deadliest bombing for five months.
Authorities subsequently ordered heightened security, with services for cellphones - which are often used to trigger bombs - suspended in major cities.
But that did not prevent Saturday's attack. Police said a 10kg bomb was hidden in a dustbin on the procession route and its powerful blast could be heard several kilometres away.
Seven people, including the four children, died soon after the blast and a man died later Saturday from his wounds in hospital, hospital officials told AFP.
"Two are still in critical condition," said doctor Azhar Ali, deputy chief of Nishtar Hospital in the central city of Multan.
City police chief Khalid Suhail said the dead children were aged between 6 and 11 years. "They were young boys," he said, adding that two of them were brothers.
Mobile and wireless phone services were temporarily blocked in the commercial capital Karachi, the southwestern city of Quetta and several cities and towns in Khyber Pakhtunkhwa and Punjab provinces as well as in parts of the capital Islamabad.
It is the second time Pakistan has shut down mobile networks during Muharram.
The Taliban has been fighting an insurgency against security forces since 2007 but the hardline Sunni group has also targeted Shi'ites.
Dera Ismail Khan lies near Pakistan's semi-autonomous tribal belt, where Taliban and al-Qaeda-linked militants have carved out strongholds.
It also borders the insurgency-hit southwestern province of Baluchistan and populous Punjab province.
Magnet for attacks
Ashura has long been a magnet for sectarian attacks. In December 2009, a suicide bomber killed 43 people at an Ashura procession in Karachi.
During processions, held across the country, Shi'ites carry black banners and replicas of the tombs of Muslim saints as they parade on main roads. Marchers recite elegies, beat their chests with open palms, and some flagellate their bare backs with knives.
Hussain is equally revered by Sunnis but hardliners oppose the public mourning of his martyrdom.
Shi'ites account for around 20% of Pakistan's 167-million population.
Nationwide sectarian violence between militants from the two communities is estimated to have killed more than 4 000 people since the late 1990s.
Pakistan says 35 000 people have been killed as a result of militant attacks since the 9/11 attacks and the 2001 US-led invasion of neighbouring Afghanistan.