Footage captured by a nearby camera showed a huge orange fireball blow out the heavy front doors and windows from the grey stone three-storey building. Thick billows of smoke then poured out as people scattered along the rain-soaked street.
Russia's Investigative Committee spokesman Vladimir Markin said officials had launched an inquiry into a suspected "act of terror" - the deadliest attack in Russia for almost three years.
"A suicide bomber who was approaching a metal detector saw a law enforcement official and, after growing nervous, set off an explosive device," Markin said in televised comments.
Doctors and police said 16 people were killed and nearly 45 injured by the explosive equivalent of more than 10 kilogrammes (16 pounds) of TNT. Russia's interior ministry said it was immediately stepping up security at all the nation's main train stations and airports.
"These measures involve a greater police presence and more detailed passenger checks," an interior ministry spokesman told the Interfax news agency.
The Volgograd government also introduced a heightened terror alert level in the region for the coming 15 days. The lifenews.ru website published a picture of what it said was the head of the young woman bomber lying amid a pile of debris with her long brown hair spread across the floor.
The website and state-run RIA Novosti identified the bomber as a Dagestani woman named Oksana Aslanova who had been married to two different Islamists killed in battles with federal forces. Investigators added that she may have been assisted in her attack by a man they identified only by the last name of Pavlov.
Woman suicide bombers are often referred to in Russia as "black widows" - women who seek to avenge the deaths of their family members in the fighting by targeting Russian civilians.
Olympic security fears
The city known as Stalingrad in the Soviet era was already attacked on October 21 by a woman suicide bomber with links to Islamists.
That strike killed six people aboard a crowded bus and prompted the authorities to refocus their attention on the security measures being taken ahead of the February 7-23 Winter Games in Sochi. The Black Sea city lies 690 kilometres (425 miles) south-west of Volgograd and in proximity to the violence in North Caucasus regions such as Dagestan and Chechnya.
Militants are seeking to impose an Islamist state throughout Russia's North Caucasus. Their leader Doku Umarov has ordered rebels to target civilians outside the region and disrupt the Games.
The Kremlin said President Vladimir Putin - who has staked his personal reputation on Sochi's success - was "immediately" informed of Sunday's incident and being regularly updated about the probe. Russian authorities have repeatedly vowed to take the highest security precautions in Sochi. There have been few indications to date of foreign sports fans cancelling their attendance out of safety fears.
European Union President Herman Van Rompuy in a statement condemned "in the strongest terms the heinous attack in Volgograd", while NATO head Anders Fogh Rasmussen said NATO and Russia "stand together in the fight against terrorism". French President Francois Hollande meanwhile expressed his country's solidarity with the Russian people after the "terrible attack". Militant strikes have become part of daily life in the mainly Muslim North Caucasus. But the Volgograd blast will be a particular concern to the authorities as the bomber struck a city of more than one million people in the Russian heartland. Sunday's blast was the deadliest in Russia since a suicide bombing at Moscow's Domodedovo airport killed 37 people in January 2011.
Woman suicide bombers have repeatedly struck Russian targets during Putin's 14-year rule. Umarov dispatched two women to set off blasts at a pair of Moscow metro stations in March 2010 that killed more than 35 people. So-called black widows were also responsible for killing more than 90 people when they took down two passenger jets that took off from a Moscow airport within minutes of each other in 2004.