The Taliban claimed responsibility for the bombing, which targeted a police station.
Two policemen, a patrolman and an officer, were among the dead, said Abdul-Hakim Isaqzai, the police chief of Khost province, which borders Pakistan.
"It was very powerful, It shook Khost city," he said about the blast.
Isaqzai said the police became suspicious of the bomber, prompting him to detonate his car rigged with explosives.
The blast, in a crowded area of the city, damaged houses and shops and sent a pillar of thick black smoke into the air.
The police chief said security forces have surrounded the neighbourhood and ambulances were speeding through the area, transporting the injured to medical facilities.
Amir Pacha, director of hospitals in the province, said at least 30 other people, mostly civilians, were wounded in the blast.
In Dec 2009, a suicide bomber, who was a double agent, killed seven CIA employees at a US intelligence base in Khost.