The target of the attack was local security guards known as Campaign Forces and several civilians were also affected by the blast, the source told Xinhua news agency anonymously.
The blast occurred near a taxi stop where the guards were arriving to go to Chapman Camp, a military base run by the United States and NATO forces in the outskirts of the city, he said.
Several people were also injured by the attack in the city, capital of Khost province bordering Pakistan.
No group has claimed responsibility for the attack so far.
The attack came on the day as Afghans prepare to mark the first day of Ramadan, the Muslim holy month during which the faithful avoid eating and drinking from dawn to dusk.