targeted by Taliban militants waging a two-and-a-half year insurgency that has killed more than 2,600 people in Pakistan.
"There were two blasts, at least 36 people were killed," doctor Rizwan Naseer, the head of Lahore's rescue service, told reporters. He put the number of wounded at 95.
City police chief Muhammad Pervez Rathore said the bombs were apparently planted at Moon Market and detonated remotely, and put the death toll slightly lower, while bodies were still being pulled from the rubble.
"Twenty-seven people are confirmed dead but the death toll may rise. A total of 137 people were injured," he said. "The blasts knocked out the electricity. Fire engulfed the whole of the market."
"We fear there are still dead bodies inside."
The two fierce explosions struck about 30 metres (yards) apart, said city police official Shafiq Ahmad.
"There were two blasts with an interval of about 30 seconds. One was in front of a bank and one was in front of a police station," he said.
Rana Sanaullah, law and home minister for Punjab province, said the bombs had been set off by remote-control and linked the attack to an anti-Taliban offensive under way near the border with Afghanistan.
"After the successful operation in Waziristan, the terrorists have started targeting innocent people, women and children," he told reporters.
Pakistan TV stations showed footage of buildings in flames as rescue workers rushed to the chaotic scene and firemen struggled to put out the blaze.
Vehicles and shops were badly damaged in the Moon Market area in the centre of the city of nearly eight million people.
Earlier on Monday, 10 people were killed when a suicide bomber struck outside a court in the northwestern city Peshawar, which has borne the brunt of Taliban attacks avenging military offensives against them across the region.
But Lahore has also been in the crosshairs of the insurgents, with five other militant strikes this year killing more than 70 people in a city known for its universities, buzzing theatre scene and art galleries.
It is the capital of Punjab, Pakistan's most populous province, with many of the nation's senior military figures hailing from the area.
In March, masked gunmen opened fire on the visiting Sri Lankan cricket team in central Lahore, killing eight people and wounding six players.
Similar commando-style assaults hit three police centres on October 15. Twenty-eight people died after gunmen attacked with suicide vests and grenades.
Insurgent attacks have intensified this year as the military pursues offensives against Taliban strongholds across the northwest.
October and early November saw a fierce surge in attacks, including a huge suicide car bombing on October 28 that ripped through a Peshawar market killing 125 people in the worst attack in Pakistan in two years.
There had been a lull in attacks in recent weeks, then on Friday four suicide bombers stormed a mosque in Islamabad's twin city Rawalpindi, killing 36 people in an onslaught of gunfire, grenades and explosions.
Pakistan's military is engaged in offensives against Islamist fighters across much of the northwest including the tribal areas bordering Afghanistan, a region branded by Washington as the most dangerous place on Earth.
The tribal belt has been plagued by instability for years, exacerbated in 2001 when a US-led invasion ousted the Taliban regime from Afghanistan, sending hundreds of Taliban and Al-Qaeda-linked militants into the lawless region.