Police on Friday used tear gas to quell stone-throwing protesters in the commercial centre of Lal Chowk in Indian Kashmir's main city, Srinagar, where Thursday's blast occurred.
The protest, in which demonstrators shouted "We want freedom, long live Islam," came as 10 more people died on Friday in fresh violence in the region where rebels have been fighting a 15-year battle against Indian rule.
The victims included a Muslim man and his two children, killed when a bomb exploded in their faces.
Thursday's blast was the second suspected rebel attack in two days in Srinagar. On Wednesday, two people died and 34 were injured when a car bomb exploded in another commercial district.
A Muslim group opposing a bus service between the Indian and Pakistani zones of Kashmir, meant to promote peace in the divided region and reunite divided families, claimed responsibility for that attack.
Violence has soared in the scenic state despite a peace process by India and Pakistan that they have declared "irreversible."
Since the 7 April launch of the bus service, more than 130 militants have died in clashes with Indian troops and 65 civilians and security officials have been killed.
The protesters also chanted prayers for the Muslim woman and her daughter slain in the attack near the missionary school in Srinagar, the urban hub of the revolt.
The attackers hurled a grenade at a security vehicle and missed, and the device exploded outside the school gates, killing the two people and injuring 50, including 20 schoolchildren, police said.
The Jihad Council, an alliance of more than a dozen rebel groups, based in Pakistan-administered Kashmir, condemned the attack and blamed the blast on "Indian agencies and state-controlled police".
"We need to find out who did this," said Imtiaz Ahmed, a relative of Thursday's victims, urging an independent investigation. "We can't just take the government's word."
Indian intelligence "agencies are carrying out such cowardly acts in response to our successful strikes," the Jihad Council said in a statement released in Srinagar.
A police spokesman termed the allegations "absurd", adding, "Militants have done this in the past and they did it Thursday too."
Kashmiris have protested against
a lack of security
Rebels and Indian government authorities frequently have traded blame over such attacks.
Stores and businesses in Lal Chowk closed to protest against the blast, and lawyers in Srinagar staged a daylong strike and demanded an independent inquiry into the attack.
Troops also shot and killed seven suspected rebels in separate clashes. Tens of thousands have died in insurgency-related violence since the uprising began.