Earlier on Friday morning, Prime Minister Binali Yildirim said 100 people were injured in the explosion, 93 of whom have since been released from hospitals.
ISIS claimed responsibility late Friday, according to a statement circulated online by the Amaq agency which is affiliated with the terror group.
The claim conflicts with an earlier statement from Turkish authorities who blamed the Kurdistan Workers' Party (PKK) for the attack.
The bomb, which damaged cars and nearby building facades, rocked the heavily-populated Baglar district in central Diyarbakir shortly before 8 a.m. local time, the provincial governor's office said in a statement.
A 30-year-old conflict between the Turkish state and militants from the PKK reignited more than a year ago in Turkey's predominantly Kurdish southeast.
Party leaders detained
The deadly explosion came just hours after more than a dozen members of Parliament from a pro-Kurdish political party were detained because they failed to respond to a summons by a prosecutor, according to a statement from the Prime Minister's office.
State media reported that several politicians from the Peoples' Democratic Party (HDP), were detained as part of a terror investigation, following raids on their homes.
The HDP, Turkey's third-largest political party, claimed its headquarters in Ankara were raided.
Ankara has been accused of cracking down on dissidents since a coup attempt over the summer.
Anadolu reported that party leaders Selahattin Demirtas and Figen Yuksekdag have now been formally arrested along with four party members. Four people are still being detained without charges, while three others were released but remain under judicial scrutiny and face travel bans.
Demirtas tweeted late Thursday that "police officials are at my door in my Diyarbakir house [in southern Turkey] to detain me by force."
Web access blocked?
The party said in a tweet that an internet slowdown was in effect "to prevent reactions through social media" to the arrests.
According to TurkeyBlocks, an Internet monitoring group, access to several social media platforms including Twitter, Facebook and WhatsApp, had been restricted in the country. An expert for the group said that domestic Internet providers were "throttling" or slowing connection to specific social sites, causing the blocked access.
'Early steps of civil war'
The HDP said at a press conference in Istanbul that party members have started to stage sit-in protests in front of their buildings.
Branch chief Dogan Erbas also called for a larger protest to take place on Saturday afternoon. He said the detainment goes against democracy and democratic forces in Turkey.
Gulistan Kilic Kocyigit, a HDP member, added that Turkey's ruling Justice and Development Party (AKP) had two options after the July 15 coup -- "democracy or dictatorship."
"AKP did not hesitate to bring the country [to] the edge of a civil war. What we live today is the early steps of a civil war," she said.
She added: "We will use our legitimate right of resistance. If we do not want Turkey to become Syria, Iraq, Afghanistan and Pakistan, we should choose [to] side with democracy and liberties."
The detentions and explosion come just days after
Diyarbakir's first elected female mayor -- Gultan Kisanak -- and her co-mayor were detained. Kisanak, a member of HDP, was detained on terror-related charges, according to Anadolu.
Demonstrators took to the streets to protest her detention, and riot police used water cannons to disperse them.
The PKK is identified as a terror group by Turkey, the US and the EU.
The Kurds are Turkey's largest ethnic minority. For much of the 20th century, the state oppressed this community.
Idris Baluken, a member of HDP and a member of the Parliament, said, "This is an attack on Kurdish identity and dignity. This attack is no different then any attack on Kurdish officials in the last 100 years."