The blast took place outside a high school and near a post office and two police camps. Police did not immediately say who they believe was the target.
Two badly mutilated bodies were seen lying under a damaged truck before police gathered body parts and placed them in a bag. Only the engine of the car in which the explosive was planted remained.
"In all 14 people have died and over 100 are injured," a police spokesman said. Eight of those hurt in the blast were in critical condition. Bleeding students fled the school, leaving behind their books and shoes, which lay scattered in the grounds and classrooms. At least 12 of the injured were high school students.
"None of them has serious injuries," the spokesman said.
Army spokesman Vijay Batra attributed the explosion to a car bomb. "It was a car bomb detonated by militants," Batra said.
Witnesses said many vehicles and several dozen shops, houses and office complexes were damaged by the blast that sent people scurrying for cover.
The explosion, which sent splinters in all directions and partially damaged the school, closed all shops, banks, post offices and other schools in the town, which is prone to rebel attacks.
"The town is in chaos," said Mohammed Ayub, 35. "People are running from hospital to hospital to look for their missing relatives."
Police fired tear gas followed by live rounds in the air to disperse angry crowds who blamed the government for the attack and protested what they said were police delays in getting the injured to hospital.
None of the one dozen groups fighting for freedom claimed responsibility for the explosion, which was condemned by the main alliance, the United Jihad Council.
"It is a clear act by Indian agencies to create a wedge between Mujahideen and the general masses," a council statement said in occupied Srinagar.
Indian officials termed the allegation as baseless.
All Parties Hurriyat Conference leader Syed Ali Geelani called for a one-day strike on Tuesday to protest at the blast.
"The blast seems to be a conspiracy to malign the ongoing freedom movement," he said, urging a probe by "neutral agencies".
Elsewhere, six people including four suspected freedom fighters were killed in the past 24 hours in separate gun battles in occupied Jammu, police said.