Karachi is known for its history of political and ethnic violence where there is concern that the city is being used as a haven for the Taliban.
Observers fear the incident would harm the already struggling economy in the economic capital which is home to 18 million people.
Fazal Qureshi, the chief editor of the Pakistan Press International news agency, told Al Jazeera that "all the buses have gone off the road and people aren't leaving their homes unless they really have to".
Shops and services have been closed in large areas of the city.
"Some have been closed in mourning" for the slain politician, while other shop-owners closed up in fear of rioting and destruction, Qureshi said.
Officials said those killed in the clashes were rickshaw drivers, taxi drivers, labourers and passers-by from various ethnic groups.
Amir Latif, the bureau chief of Pakistan's largest independent wire service Online News Network, told Al Jazeera the attack mostly targeted Pashtuns.
"Conspirators want to destabilise Karachi, which is the financial engine of Pakistan."
Jameel Soomro, provincial government spokesman
"There could be the involvement of any sectarian element in the killing because he [Haider] was a Shia Muslim. But the ultimate aftermath of this murder was rather ethnic," he said.
"Two ethnic groups are fighting in Karachi. They're at war with each other to establish their political domination in the city."
Haider, who belonged to the Muttahida Qaumi Movement (MQM), a partner in the Sindh provincial ruling coalition led by the Pakistan Peoples Party, was targeted by armed men on two motorcycles in the neighbourhood of North Nazimabad.
"He had gone to attend a relative's funeral. Drive-by shooters attacked him near a mosque, injuring him and his guard seriously," Waqar Mallan, a police official, told the AFP news agency.
"He died on his way to hospital. It was a targeted killing."
Jameel Soomro, a spokesman for the Sindh provincial government, said the killing was a part of a broader "conspiracy".
"The country is in the grip of natural calamities and we are fighting against terrorists. At this moment, conspirators want to destabilise Karachi, which is the financial engine of Pakistan," he said.
Orders had been given to security forces to "shoot on sight miscreants involved in creating a law and order problem", Soomro said.
The Muttahida Qaumi Movement, which carries a strong anti-Taliban stance, renewed calls for a crackdown on the Taliban after the assassination.
|Vehicles, restaurants and shops were set alight during the overnight violence [AFP]
"For the past three to four years we have been pointing out and giving evidence about the presence of Taliban and extremists in Karachi," Wasay Jalil, a party spokesman, said.
"We were ridiculed at that time. But now everyone is admitting that the Taliban and the SSP are here."
Karachi, a city of 16 million, is plagued by ethnic and sectarian killings, crime and kidnappings.
The government has not released exact figures, but security officials say more than 125 people have been killed there since the beginning of this year.
The city is dominated by Mohajirs, Urdu-speaking people who migrated from India after Pakistan was created in 1947, but there is also a sizeable population of ethnic Pashtuns.
The MQM is generally seen as representing the Mohajirs.