"The scene is ghastly. Limbs and other body parts are strewn all over the place," Sarat Chandra, a local television reporter, reported from the blast site.
Dozens of armed separatist groups are active in India's northeast, which lies between Bangladesh, Bhutan, China and Myanmar.
Tuesday's blast is the most severe to hit Imphal in recent months. Government ministers and buildings have faced a string of bomb and grenade attacks.
On Sunday, a grenade exploded close to the residence of Okram Ibobi Singh, a chief minister, but there were no casualties.
A spokesman for the People's Revolutionary Party of Kangleipak (Prepak), which last month fired a shell at Singh's fortified house, said on Tuesday that it had carried out Sunday’s attack.
Separatist fighters in the northeast of the country allege that the central government in Delhi is exploiting the northeast's natural resources for its own gain.
They say that Delhi is doing little for Manipur's indigenous peoples, most of whom are ethnically closer to Myanmar and China than to the rest of India.