Senior local police official Ahmad Mohiuddin said explosives were packed into a motorbike parked near the vehicle of a religious leader taking part in the rally.
Pictures from the scene showed broken glass, rubble, and bloodstains.
"It was an improvised explosive device which went off as participants began to disperse," added Tariq Mengal, a senior local administration official.
No group has claimed responsibility.
Thousands of people rallied across Pakistan on Friday in support of Palestinians, hours after a ceasefire was announced between Israel and Hamas which governs the Gaza Strip.
The rallies followed Friday prayers which usually draw huge crowds to mosques.
Demonstrators could be seen waving signs that said "Free Palestine", while a major road connecting the capital Islamabad to the neighbouring city Rawalpindi was blocked.
Friday's Chaman blast comes just weeks after a suicide bombing in Quetta at a luxury hotel where the Chinese ambassador was being hosted.
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