Hyder said the area had been destabilised because the war in Afghanistan and attacks by US drones in the region had "driven much of the population to go against the government".
Mohammad Khan, a resident of the town, told AP: "It [the explosion] took place outside the police chief's residence.
"I myself have seen four bodies. There may be more."
Shah is reported to have escaped the attack unhurt.
Mardan is around 110km northwest of the Pakistani capital Islamabad.