The blast in the city of Thenia, some 40 miles east of the capital Algiers, seriously damaged several nearby houses, the officials said, speaking on the condition of anonymity because they were not authorized to speak to media.
A wave of recent attacks in Algeria has signaled that Islamic fighters are regrouping in the country, where military crackdowns and amnesty offers had thinned the insurgents' ranks.
Earlier this month, four people died when a vehicle rigged with explosives slammed into the police station in the town of Naciria, east of Algiers.
Twin suicide bombings on Dec. 11 at U.N. offices and a government building killed at least 37 people in the capital.
A local al Qaeda affiliate, al Qaeda in Islamic North Africa, claimed responsibility for those attacks.
The group - which emerged from an alliance between Osama bin Laden's international terrorist network and an Algerian Islamist movement known as the Salafist Group for Call and Combat, or GSPC - has increasingly used vehicles packed with explosives to deliver its strikes.
Algeria has been battling an Islamic insurgency that broke out in the early 1990s, when the army canceled the second round of the country's first multiparty elections to prevent likely victory by an Islamic fundamentalist party.
Armed groups then turned to force to overthrow the government, and up to 200,000 people were killed in the ensuing violence.
Until recently, the insurgency had been dying down. But the GSPC's alliance with al Qaeda in late 2006 appeared to breath new life into the movement, which began to wage larger-scale bombings and target foreigners.