James Bays, Al Jazeera's correspondent in Kabul, said: "The security arrangements have been changed, temporarily at least, in the key city in troubled south of Afghanistan.
"The Afghan army is taking control ... they are going to be the lead security agency in Kandahar city ... it shows how worried they are."
'Shock and anger'
Al Jazeera's Zeina Khodr, reporting from the scene of the blast, said: "It was on a main road and all you can see is destruction - homes and shops destroyed.
"The people gathered outside where the police set up their cordon ... said they do not think the Taliban was behind this attack. They are pointing their fingers at the Americans and the Pakistanis.
"The people here are angry and shocked, they are used to bombings, but not on this scale."
The bomb went off near a guest house, the Kandahar provincial intelligence headquarters and just 800m from the local UN offices.
"The staff is good, everybody is safe," said Samad Khaydarov, the head of the UN assistance mission in Afghanistan.
"Our office, our guesthouses, are safe... Unfortunately, security is not so good in Kandahar."
Hamid Karzai, the Afghan president, has ordered a thorough investigation of the incident and called on security officials to "arrest those responsible as soon as possible," his office said.
Kandahar is the biggest city in southern Afghanistan, an area where Taliban fighters battling the Western-backed government continue to have strongholds.
The city was the powerbase of the former Taliban government, which was ousted from power in Afghanistan by US-led troops in 2001 and replaced with Karzai's Western-backed administration.
The Taliban has struck repeatedly in recent weeks in a bloody countdown to nationwide elections last week, only the second time that war-weary Afghans have voted for a president in their history.
Also in Afghanistan on Wednesday, Qari Jihangir, the head of the Kunduz provincial justice department, was killed by an explosion, said Abdul Razaq Yaqoubi, a regional police chief said.
"The bomb was placed in his car. We're investigating the incident right now."
Other roadside bomb attacks in Khost and Logar provinces left five people dead, including two Afghan soldiers.