The car stopped in front of the bus near Zahedan, the capital of Sistan-Baluchestan Province, the official Islamic Republic News Agency reported. It called the attack a terrorist operation and said the car's occupants fled on motorbikes seconds before the car exploded.
"This blind terrorist operation led to the martyrdom of 18 citizens of Zahedan," IRNA quoted a Guards commander, Qasem Rezaei, as saying.
State-run television said the bus had been taking them to work when the attack took place.
There was no immediate claim of responsibility but Rezaei blamed "insurgents and elements of insecurity" for the attack.
Hossein Ali Shahriyari, a deputy representing Zahedan, told an open session of the parliament Wednesday that "insurgents and drug traffickers" were behind the attack.
Soltan Ali Mir, a local Interior Ministry official, said five of those behind the explosion were arrested, IRNA reported. It did not say how many were involved.
The passenger car stopped in the middle of the road at early in the morning in Ahmadabad district on the outskirts of Zahedan, IRNA said. After the bus stopped, the car's occupants fled and the vehicle exploded.
Zahedan and its surroundings, which lie near Iran's borders with Pakistan and Afghanistan, have been the scene of clashes between police and drug smugglers in the past.
Three small explosions injured two people in Zahedan last June, but Wednesday's explosion was the deadliest in years.
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