The explosion ripped through a congregation of hundreds of mainly Shia worshippers who had gathered on Friday for the last day of a religious festival at the Bari Imam shrine.
The shrine is about a kilometre from the residence of Prime Minister Shaukat Aziz and the heavily guarded diplomatic enclave that houses the embassies of the United States and other countries in the capital, Islamabad.
Thousands of Muslims, both Sunnis and minority Shia, attended the five-day festival. The explosion left blood, body parts, shoes and pieces of clothing scattered over a wide area.
Police recovered the head of a man who appeared to be in his 20s and is thought to be the attacker, said Information Minister Sheikh Rashid Ahmed.
"(Investigators) are trying to identify him. We will soon determine who he is," Ahmed told The Associated Press.
He has offered a reward of $8400 (500,000 rupees) for information that helps identify the attacker.
Saturday newspapers published photographs of the suspect's head - with an unshaven face, thin moustache and curly hair.
The bombing struck the congregation under a canvas shade as they awaited for the arrival of Shia leader Hamid Mosavi, a vehement critic of the US-led war on terrorism, who was about to deliver a sermon. Mosavi was not hurt, witnesses said.
A government official, Tariq Pirzada, said at least 18 people were killed and 86 others hurt in the explosion, the state-run Associated Press of Pakistan news agency reported.
The bombing struck a group
of Sunni and Shia worshippers
Hundreds of Shia worshippers, beating their chests and heads in mourning, clashed with police near the shrine afterwards when officers charged the crowd with batons to clear the way for ambulances. Some chanted, "Down with America".
Police stepped up security in Islamabad on Saturday.
Pakistan's president, General Pervez Musharraf, condemned the deadliest attack in the capital for years, and appealed for his countrymen to unite against "religious terrorism, sectarianism and extremism."
UN Secretary-General Kofi Annan also condemned the bombing and expressed outrage that civilians have been targeted at their places of worship.
US Assistant Secretary of State for South Asia Christina Rocca, who was in Islamabad for talks, expressed condolences for the attack. "This was a horrible thing to have happened," she said.
Sectarian attacks are common in Pakistan. Sunnis make up about 80% of its 150 million people and Shia about 17%.
Most live peacefully together, but extremist elements on both sides have violent agendas. The schism dates back to a 7th-century dispute over who was the true heir to the Prophet Muhammad.