At least 18 people were injured in an explosion near the main bus stand in Jammu around noon on Thursday.
Inspector General of Police M.K. Sinha said it was a grenade explosion.
"18 civilians sustained splinter injuries and were taken to hospital," he said.
Experts are examining the site, said the police after sealing off the area.
Visuals from the spot showed security personnel barricading the area as locals rushed in. "I thought it was a tyre burst. It was a big blast. The locals took the injured to the hospital in an ambulance," an eyewitness told news agency ANI.
This is the third grenade attack by terrorists in the bus stand area of the city since May last year.
"The police is working on all the leads. We are collecting evidence and we will hunt them down," a police officer told reporters.