By Ben Farmer in Kabul
The blast in the Dihrawud district of Uruzgan province is the deadliest for several months and comes after the United Nations reported civilian casualties had continued to rise as the Taliban-led insurgency widened.
The lone bomber was spotted by a guard entering a money-changing market at lunchtime and detonated explosives attached to a waistcoat before he could be stopped.
General Abdul Hameed, commander of Afghan forces in Uruzgan, said 20 people had been killed including the guard and 13 others wounded.
At least three children were among the dead.No one immediately claimed responsibility for the blast, but the Taliban regularly use suicide bombers in their insurgency against Hamid Karzai's internationally-backed regime.
A district police official said the attacker may have been targeting a regular meeting between Nato and local officials and tribal elders held near the site of the blast.
A UN report published this week estimated more than 2,400 civilians were killed in fighting and attacks during 2009 and blamed two thirds of the deaths on the Taliban.
Mr Karzai released a statement condemning the attack.
In a separate incident, an Afghan policeman was killed and four others wounded when a suicide car bomber struck in the British-garrisoned district of Musa Qala in Helmand.
Nato-led forces have continued to see heavy casualties this year with the death toll reaching 22 this month.