Local officials said the bomb had been strapped to a bicycle left in the market and detonated remotely.
Meanwhile, the top US military official has said the Pentagon's Afghan efforts are to focus on Kandahar.
No group said it had carried out the attack on Babaji.
The area is close to Marjah, the focus of a major offensive against the Taliban.
No foreign security forces were caught up in Wednesday's blast, the local news channel in Kabul.
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