The attack came days after control of security in the city, the capital of Helmand province, passed from foreign to Afghan forces in a process which will see all foreign combat troops leave Afghanistan by the end of 2014.
Some experts question the ability of Afghan soldiers and police to protect their country against attacks from the Taliban, who claimed responsibility for the latest blast, and other insurgents.
Daud Ahmadi, spokesman for Helmand's provincial governor, said 11 people had been killed and nine wounded.
"Among the dead there is one child and 10 others are policemen. Wounded are seven policemen and two civilians," he said.
"The explosives were placed in an SUV (sports utility vehicle)."
The blast happened at around 8:30 am (0400 GMT) in front of the heavily-secured police headquarters as Afghan police left to go on a patrol, a statement from the governor's office added.
The Taliban published a statement on their website claiming responsibility for the attack in Helmand, one of the most dangerous provinces in Afghanistan and a focus of the war in the south.
"A large number of policemen were gathered and a hero of the Islamic Emirate of Afghanistan struck and exploded his vehicle laden with explosives," the statement said.
A doctor at the local hospital, speaking on condition of anonymity, had earlier said it had received six bodies and 13 wounded in the wake of the explosion.
"The wounded are being treated and we've made calls to families of the deceased to collect the bodies," he said.
The blast comes amid ongoing concerns over the ability of the Afghan security forces, which are receiving huge sums of money from the international community in a bid to build them up.
There are currently at least 126,000 police in Afghanistan and thousands more are being trained up in programmes financed by countries in the NATO-led International Security Assistance Force (ISAF).
However, they have faced allegations of corruption and also struggle with factors including low literacy rates among recruits.
The Afghan police and army are frequently targeted in attacks by the Taliban and other insurgents in a bid to undermine President Hamid Karzai's government in Kabul.
There are currently roughly 140,000 foreign troops in Afghanistan, of which about 100,000 are from the United States.
Some nations have already started withdrawing troops ahead of the 2014 deadline.
The attack follows a spate of assassinations in southern Afghanistan in recent weeks, including that of President Hamid Karzai's powerful half-brother, Ahmed Wali Karzai, in neighbouring Kandahar province.
Karzai was killed by his bodyguard earlier this month, while Kandahar mayor Ghulam Haidar Hameedi was assassinated last week by a suicide bomber who hid explosives in his turban.