The army threatened to unleash gunship helicopters on activists of both sects who were holed up in villages near Hangu and launching mortar rounds at each other.
"The death toll is 40, and it may go up. The situation is very tense in the city," Ghaniur Rehman, mayor of Hangu, told AFP. He said that 35 people were known to have died in the explosion and in subsequent fighting between Sunnis and Shias on Thursday.
Another five died as further battles erupted on Friday, two of them during an exchange of heavy mortar fire overnight in Ibrahimzai village, 10 kilometres (six miles) from here, he said.
Fresh gunfire broke out in Hangu after officials in some areas relaxed curfew restrictions for Friday prayers, according to witnesses, who said they saw residents and security officials running for cover. Three more people were wounded when a rocket hit a house in Hangu on Friday afternoon, Rehman said.
Officials said earlier that at least 31 people died and more than 70 were wounded in Thursday's blast and the resulting mayhem, including four bus passengers and four truck drivers shot dead by unidentified gunmen. Security was also high across Pakistan amid fears that the bloodshed could stoke tensions between the rest of the country's Sunnis and Shias. The two groups generally live in harmony, but thousands from both communities have been killed across the country in sectarian attacks.
Sporadic gunfire and rocket blasts could still be heard from surrounding villages on Friday, an AFP correspondent in Hangu said. Shops torched in riots sparked by the bombing continued to belch out black smoke.
Military officials said troops had flushed out Shias and Sunnis who had stationed themselves in Hangu's bazaar and attacked the rival sect's shops late in the night.
"There was heavy firing and shelling last night but the situation is quite under control now," paramilitary Frontier Corps official Jahanzeb Khan told AFP.
Troops have warned the feuding groups positioned on mountains in Ibrahimzai to disengage, or the army will use helicopter gunships against them, Hangu police chief Abdul Majid Khan said.
Police vans fitted with loudspeakers were warning residents to stay in their homes, Khan said.
"The situation is not fully under control and there is a tense calm," Khan said. He added that the town centre was still restive because the hospital was returning the bodies of the victims to their relatives for burial. Residents said around 80 percent of Hangu's 700-800 shops had been gutted by rampaging mobs and the bazaar, where the blast happened, looked "like a war zone".
Khan said the suicide bomber's remains were in the hospital and officials were trying to identify him. The hospital chief, Abdul Rashid Khan, said a body, with its upper torso missing, was being treated as that of the bomber.
Interior Minister Aftab Sherpao was quoted by state media as saying that the situation was under control in Hangu. Hundreds of Shia youths staged a protest demonstration in Lahore after Friday prayers.
Calling for Sunni and Shia harmony and carrying portraits of late Iranian leader Ayatollah Khomeini, they burnt tyres and demanded of the officials to "hang the culprits" responsible for the Hangu blast.