Seven persons, including five children, were killed and four injured when a bomb exploded in a house at Tikamgarh, about 350 km north-east of Bhopal.
The injured have been referred to Gwalior for treatment.
The administration announced Rs 50,000 compensation for the kin of each of the deceased and Rs 25,000 for the injured.
The incident took place on Friday afternoon in the house of one Kannu at Kuchbandhiya locality in Kotwali police circle, when an unused grenade, suspected to have been collected by the metal scrap collectors of the locality from the Army's Babina Firing practice range, exploded.
According to police, the unused shell exploded possibly when the metal scrap collectors took out the grenade pin in the process of extracting the metal oblivious of the fact that the grenade was not used.
The impact of the blast
was such that the body parts were scattered and a loud sound was heard even a kilometre away.
The victims belong to four different families. The deceased have been identified as Chhotua, 13, Arun, 11, Kajal, 5, Vishu, 2, Rajpal, 26, Sonu, 18, and Manisha, 5. Chhotua and Arun were sons of one Prakash while Kajal and Vishu were daughters of Gudda.
Inspector general of police GP Singh said a case had been lodged by police.