While the cause of the blast on Saturday evening is still unknown, Taliban are fighting US-led troops and the Afghan National Army in Paktia and its neighbouring provinces along the border with Pakistan.
"So far, seven students have died and 15 others are wounded, two of them critically," Paktia Governor Haji Assad Allah Wafa said.
"The explosion took place last night inside a private madrassah," he said.
The religious school was in the village of Naiknaam near the town of Zormat 125km south of Kabul, according to the Pakistan-based Afghan Islamic Press agency.
The premises were also used by a non-government organisation for teaching Afghan women.
Wafa said there were contradictory reports about the cause of the blast.
Some said it was an explosive device placed on a motorcycle parked outside the school while others said a device was planted inside the school.
Lieutenant-Colonel Sue Meisner of the US military's press centre in Kabul said there were conflicting reports on the extent of the casualties.
An initial report suggested 30 children and two adults were wounded.
US and Afghan troops have killed a Taliban commander and detained 22 suspected Taliban fighters in a major search operation after a gun battle in southern Afghanistan.
Mullah Ruzi Khan, a Taliban commander in troubled Zabul province, was killed after troops surrounded a group of fighters in Ghazoi village on Friday evening, said Asad Allah Khan, the governor of neighbouring Ghazni province.
About 18,000 US troops are
stationed in the country
US military spokesman Major Scott Nelson said earlier on Saturday that military sweeps began on Friday in Zabul and Ghazni provinces.
Nelson said 22 Taliban suspects had been detained. It was not clear how many Afghan or American soldiers were taking part in the operations. None were reported injured.
Zabul has seen some of the bloodiest fighting between fighters and US-led forces since the fall of the Taliban in late 2001.
About 18,000 American-led troops are in Afghanistan to hunt down al-Qaida and Taliban fighters and to help ensure security for landmark presidential elections scheduled for 9 October.
Another regional commander was taken into custody weeks after a clash with a powerful rival in the west of the country, as the authorities struggle to improve security for October elections.
Aman Allah, a Pashtun commander, was brought to Kabul on Friday from the western province of Herat, said Jawad al-Din, a spokesman for President Hamid Karzai.
Al-Din said Aman Allah agreed to the transfer, but officials speaking on condition of anonymity said he had little choice and was essentially being kept under arrest.
"He does not have the freedom to go back. He is in custody," said a senior Afghan official.
Dozens were killed in fighting which broke out earlier this month between Aman Allah's fighters and those of Herat Governor Ismail Khan, an ethnic Tajik strongman.