The PAF van was headed for the local airbase when explosives planted in a car were triggered by remote control in Badabher area, police officials said.
The powerful blast also hit a crowded bus that was passing the area.
Ten people were killed instantly, police officials told reporters.
It could not immediately be ascertained if any PAF personnel were among the dead.
Officials at the Lady Reading Hospital said they had received 22 injured people, including three children and three women, and seven bodies.
Local residents rushed the injured and bodies to the hospital in private vehicles.
Police officials said no senior PAF officers were in the van, which was carrying low ranking personnel. Witnesses said the van was packed at the time of the blast and it had no security escort.
Footage on television showed that the PAF van was destroyed while the bus extensively damaged. All windows of both vehicles were blown out.
The explosion also damaged 10 shops. Police officials estimated over 100 kg of explosives were used in the attack.
No group claimed responsibility for the bombing though such incidents are usually blamed on the Pakistani Taliban.
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