The identities of the three dead were not immediately known, said two intelligence officials.
The officials spoke on condition of anonymity because they were not authorised to speak to the media.
Azam Tariq, a spokesman for the Pakistan Taliban, told the Associated Press that they were behind the attack.
Al Jazeera's Imran Khan in Islamabad, the capital, said the "blast has left a 30-ft crater in the middle of the road".
"There were 1,000kg of explosives used in the bomb. This is a very, very powerful explosion," our correspondent said.
"The army has thrown up a cordon around the area. It's a very sensitive area with plenty of military and police installations.
"They say [the army] that the terrorists that were involved in this attack are still in the area and there are helicocpters flying over head and an emergency has been declared at a local hospital."
Security forces have been the target of most of the attacks in the recent past, though several have targeted crowded public spaces such as markets.
"They tried to hit the office of a sensitive agency but couldn't so the blast was outside," one security official said.
Witnesses said the death toll may rise as some people were still trapped under rubble.
Mohammad Qasim, a police official, said more casualties were feared in the attack, which damaged several buildings, including one belonging to Inter-Services Intelligence, Pakistan's main spy agency.
Kamal Hyder, also reporting for Al Jazeera from Islamabad, said: "The devastation from that bomb was quite gruesome.
"Entire houses and buildings bore the brunt of it and therefore there were a number of casualties, not just security personnel but once again civilians."
Spate of attacks
Pakistan has been reeling from attacks over the past two months as fighters retaliate against an anti-Taliban offensive launched by government forces in the country's northwest near the Afghan border.
Our correspondent said there were fears among many Pakistanis that the fighters can strike any time.
"If you can't keep your army safe; if you can't keep your security forces safe, how on earth are you supposed to keep ordinary Pakistanis? That's the feeling I get on the streets here in Islamabad and across Pakistan," said Khan.
"People are even thinking twice about going to the mosque to pray ... To scare a Muslim into not being able to pray is a pretty big deal."
This is the first time Multan has been hit during a surge of violence that began in October and has already killed more than 400 people in recent months.
Tuesday's attack came a day after bomb attacks across the country left dozens dead and more than 100 injured.