Officials said that it was suicide attack and at least 54 people had been killed and 200 suffered injuries.
Al Qaeda-affiliated group, Jandullah has claimed responsibility for the attack, according to Pakistani media outlet Express News.
"A large number of people were returning after watching Rangers parade ceremony at Wagah border when a suicide bomber blew himself up near one of the exit gates," Inspector General Police of Punjab Police Mushtaq Sukhera said. He said three rangers personnel were also among the dead.
To a question about security arrangements, the IG said, "The Rangers had made stringent security measures but it was difficult to check suicide bomber".
Huge crowds gather every day at the crossing to watch a "lowering of the flags" ceremony, which soldiers from both countries have conducted for decades.
In the wake of Muharram, the police had made strict security measures.
"We had reports that some banned outfits might target Shias, religious personalities, public processions and important buildings," IG Sukhera said.
He said, "Our teams have confirmed that it was a suicide blast". The IG said that the suicide bomber was stopped at the gate of the parade ground at the border and detonated the bomb right when people gathered near the gate.
"Up to five kilogram of explosive material was used in the blast," Sukhera said.
"The bomb exploded outside a restaurant near a Pakistani paramilitary soldiers' checkpoint at Wagah border," he added.
Imdad Husain, an eyewitness, told media persons that he was returning after watching the parade ceremony when he heard a bang near the Wagah border market.
"I fell unconscious. When I gained consciousness there had been complete darkness. Many injured and I cried for help lying on the road. After 15 minutes some rescue men came towards me and shifted me to the Ghurki Hospital, a border area health facility," he said.
Samina Bibi was also returning along with her husband and two young children when the blast took place. On the bed of the Ghurki Hospital she was crying and asking the doctors about her husband and children.
"The doctors were comforting her saying they are alright," Imdad said.
Punjab Emergency Services Rescue 1122 spokesman Jam Sajjad said, “We have shifted about 200 injured in different hospitals of Lahore."
Quoting a senior doctor at Ghurki Hospital, he said the condition of over a dozen is critical.
Prime Minister Nawaz Sharif has condemned the Lahore blast and ordered the authorities concerned to provide best medical facilities to the injured.
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