The explosion happened as worshippers were leaving the Zain Al-Abideen mosque, which was under heavy security due to its reputation as a launchpad for anti-Assad demonstrations after Friday prayers.
A local resident said security officials at the scene told him a man in military uniform had triggered an explosives vest when he was challenged by soldiers as he walked towards the area.
Many of the body parts scattered across the tarmac were wearing green military-style clothing, the resident said.
There was no immediate claim of responsibility for the blast. But it was close to the site of a Jan. 6 suicide bombing which was claimed by a previously unknown anti-Assad group calling itself the Al-Nusra Front.
In a statement on state television, the Interior Ministry said 26 people were wounded in the explosion, one of several bombings yesterday.
"We had been trying to go to pray in the area but they stopped us at a checkpoint. Security weren't letting us in because there are usually protests there," one anti-Assad activist told Reuters by telephone.
"Then we heard the blast. It was so loud and then ambulances came rushing past us," the activist added. "I could see a few body parts and pieces of flesh on the road. The front of a restaurant looked destroyed. People were screaming."
State television showed images of blackened flesh and a mangled hand lying on the road as soldiers and police cleared the area to make way for ambulance crews.
Earlier, a loud blast was heard near a bus station which activists say is often used by pro-Assad militiamen tasked with preventing demonstrations in the capital. Shopkeepers said a Mercedes caught fire but only the driver was wounded.
State media reported three more minor explosions in Damascus in which four people were wounded, and said five policemen were hurt by two blasts in the coastal city of Tartous.
The United Nations says Syrian forces have killed more than 9,000 people in the 13-month-old revolt against Assad. Damascus says insurgents have killed more than 2,600 soldiers and police.
Central Damascus has been spared much of the violence, although yesterday's blasts occurred less than a week after a car bomb blew up near an Iranian cultural centre in the capital.
"The action is picking up and it seems the (rebels) and Assad's forces are starting to battle it out in Damascus as well," said an activist in Midan who uses the name Mar Ram.
UN Secretary-General Ban Ki-moon accused Damascus on Thursday of breaking its pledge to withdraw heavy weapons and troops from towns, saying he was "gravely alarmed by reports of continued violence and killing in Syria."
The White House also said it was disappointed at Damascus' failure to adhere to its Annan plan promises and Washington would "continue to ramp up the pressure against the Assad regime."
Russia, one of the Syrian government's biggest remaining allies, yesterday said the rebels were largely to blame for cease-fire violations and accused them of seeking to provoke foreign intervention.
"This truce has not yet fully set in largely because opposition armed groups try to create provocations - explosions, terrorist acts, shooting at government forces, government buildings, administrative buildings," Russian Foreign Minister Sergei Lavrov told state TV yesterday.
Most independent media have been barred from Syria, making it hard to verify events on the ground.
The Syrians for Human Rights Network, one of many groups opposed to Assad, said security forces had committed 86 ceasefire violations, including a helicopter gunship opening fire on a civilian area and snipers targeting protesters.
Information Minister Adnan Mahmoud accused rebels of 1,300 truce breaches and said the state "reserved the right to respond to any violation or attack," state news agency SANA reported.
A dozen UN cease-fire monitors are already on the ground and UN officials said a full advance team of 30 out of a planned 300-strong presence would be there by Monday.
The slow build-up, more than two weeks after the truce came into effect, has sparked derision from Assad's foes and frustration in western capitals, where leaders want tough measures imposed on Damascus sooner rather than later.
France says that if Assad's forces do not return to barracks, it will push next month for a "Chapter 7" UN Security Council resolution — which could allow action ranging from economic sanctions to military intervention.
Western powers have said they intend to push for UN sanctions. Russia and China have made clear that they would veto Libya-style military action and have resisted the idea of sanctions.
