The blast in Kandahar happened as NATO and Afghan forces are preparing for a joint offensive against Taliban militants in the neighboring province of Helmand in a major bid to break the Taliban stranglehold on the south.
A policeman in the district where the blast occurred, Ahmed Shah Khan, said the bomber's target was not immediately clear, and the explosives may have detonated prematurely.
The blast occurred near a major highway that is frequently used by U.S. officials and other dignitaries in Kandahar, the main commercial center of the south.
But the three killed, including a child, were near the hotel, according to hospital official Mohammad Ibrahim.
NATO has sent reinforcements into Kandahar, 260 miles southwest of Kabul, fearing the Taliban were encroaching on the city of 800,000 people. At the same time, the international community launched a program of economic aid and development projects.
NATO and Afghan forces also killed 32 suspected militants in Helmand as troops there gear up for a push to capture the town of Marjah, officials said Thursday.
A start date for the Marjah offensive has not been released for security reasons. But U.S. and Afghan commanders have said it will be soon.
The operation will be the first major offensive since President Obama ordered 30,000 more U.S. troops to Afghanistan, and many of the Marines set to participate arrived as part of the surge. Marjah is the largest city in the south under Taliban control.
Unlike past operations, the plans for Marjah have been widely publicized by U.S. and Afghan commanders in hopes that many civilians and Taliban fighters not deeply committed to the insurgency will leave the town.
Joint forces raided Taliban compounds in the village of Khushan in Helmand's Nad Ali district on Wednesday morning, killing 32 militants, according to provincial government spokesman Daoud Ahmadi.
Three Afghan soldiers were killed and four others wounded, he said.
NATO spokesman Lt. Nico Melendez confirmed the insurgent deaths in Helmand but did not provide exact locations or dates.
Taliban spokesman Qari Yousef Ahmadi denied the militants suffered any casualties.
In northern Afghanistan, 81 Afghan prisoners were returned from Tajikistan - the first to be transferred under an agreement between the two countries that lets convicted prisoners serve their terms in their homelands.
Deputy Justice Minister Mohammad Qasim Hashimzai said most of the inmates were suspected drug traffickers and were transferred to a prison in the border province of Kunduz.
The handover came 10 days after an Afghan delegation traveled to the neighboring country to discuss the issue.
Hashimzai said Tajikistan would return some 250 Afghan prisoners, but he did not provide a specific time frame. He said Afghanistan is holding 12 Tajik prisoners who also would be returned soon.
The central Asian nation is one of the main conduits for drug trafficking out of neighboring Afghanistan. The U.N. has estimated up to 100 tons of heroin is smuggled annually across the 830-mile border between the two countries.