PESHAWAR, Pakistan (AFP) - A car bomb ripped through a packed street in Pakistan's city of Peshawar and killed 11 people, including women and children, near an ice cream shop and Internet cafe Saturday, officials said.

The blast exploded in the densely populated Kashkal area of Peshawar, the northwest city where people have sought shelter after escaping a Pakistani military offensive against Taliban militants in three districts further north.

"We were sitting in our showroom when there was a huge blast took place," Mohammad Anis, the owner of a nearby car showroom, told AFP.

"When I came out, I saw fire and smoke everywhere around me. The first thing that I saw was this," he added holding out a bloodied severed hand that had been ripped from an arm by the force of the explosion.

Gunshots were fired shortly after the bomb exploded and Anis said private security guards who had been sitting in his showroom, accompanying their bosses, ran outside and opened fire into the air in the wake of the blast.

Raw pieces of flesh, such as fingers, a foot and limbs were flung across the site shrouded in acrid black smoke, said an AFP reporter.

About 17 cars were damaged in the blast and five of them caught fire. The car in which the apparently timed device was planted blew to pieces and only a portion of its engine remained intact, the reporter said.

People clutching wounds as blood seeped through to their white traditional shalwar khamis outfits walked around in a daze at the hospital as others lay wounded in bed, according to television footage.

"We received nine dead bodies. Two more people expired later," Doctor Hameed Afridi at the main government hospital in Peshawar told AFP.

"The condition of two people among the 31 injured is serious," he added.

The list of casualties signed by Afridi showed that two women, five men and four minors aged eight to 17 years old were among the dead.

Police had earlier confirmed that nine people died.

"Nine people were killed and 20 others wounded in the explosion," local police official Abdul Gahfoor told AFP.

He said it was a car bomb, which damaged more than a dozen vehicles and a nearby Internet cafe.

The attack came five days after a suicide car bomber killed 10 people at a paramilitary checkpoint on the outskirts of Darra Adam Khel, south of Peshawar.

Peshawar, the gateway to Pakistan's tribal badlands on the Afghan border where the United States says Taliban and Al-Qaeda extremists have carved out safe havens to plot new attacks on the West, has become increasingly volatile.

Pakistan's military Saturday pressed its offensive against Taliban as the UN refugee agency confirmed that nearly a million displaced people had registered with authorities in the last two weeks.

"By Friday evening, 987,140 people were registered as displaced since May 2," UN refugee agency spokeswoman Ariane Rummery told AFP.