Afghan officials said the blast appeared to target a Japanese construction company that mostly employs Pakistani engineers. The blast collapsed the company headquarters and destroyed part of a nearby wedding hall, an Associated Press reporter at the scene said.
The AP reporter described the blast as the largest he has heard after almost eight years of living in Kandahar, the site of several large Taliban attacks in recent years.
The explosion killed at least 40 people and wounded dozens, said Gen. Ghulam Ali Wahabat, a police commander in charge of southern Afghanistan.
So many houses and nearby buildings had collapsed that officials feared the death toll could rise further. The AP reporter at the scene estimated that 40 shops had been destroyed.
"Once again they've killed children, women, innocent Afghans. They are not human. They are animals. You can see for yourself the destruction of this enemy," said deputy provincial police chief Mohammad Sher Shah.
Five vehicles filled with explosives detonated together, causing the massive blast, said provincial council member Haji Agha Lalai.
Taliban militants have carried out several complex attacks in Kandahar the last several year. Kandahar is the spiritual home of the Taliban. A large NATO base sits on Kandahar's outskirts, but militants control districts immediately to the city's west.
In other violence, a bomb blast killed four U.S. troops in southern Afghanistan on Tuesday, said military spokeswoman Lt. Cmdr. Christine Sidenstricker. No other information was released pending the notification of family members.
The deaths bring to 41 the number of U.S. troops killed in Afghanistan this month, the second deadliest month in the country since the 2001 U.S. invasion. Last month a record 44 U.S. troops died.
This year has been the deadliest of the war for U.S. troops. Including the latest deaths, at least 172 American forces have died in the Afghan war this year, according to an Associated Press count.
The U.S. has more than 60,000 troops in the country.