Police official Muhammad Kashif said the bombing "may have been a suicide attack". Hundreds of pilgrims were inside and outside the shrine when the blast took place, he said. The nature of the explosion is yet to be ascertained.
Prime Minister Imran Khan denounced the blast and sought a report of the incident, Geo News reported. More updates are awaited.
According to police, five of those killed were security personnel.
Lahore Deputy Commissioner Saleha Saeed told media that one of the dead bodies brought in to Mayo Hospital was that of the suspected attacker. The blast reportedly targeted security forces guarding the shrine.
In October 2017, at least 18 people were killed in a suicide attack on a Sufi Muslim shrine in Pakistan's southwestern province of Baluchistan.
Hospital officials feared that the death toll might rise as several of the injured are in critical condition.
The Data Darbar is one of the largest Sufi shrines in south Asia.
A security operation is still under way in the area, with heavy police presence at the blast site.
A police investigation has been launched as access to the shrine has been blocked. The deceased included five policemen and three civilians, officials said.
"People should remain aware of their surroundings when going to pray", suggested Punjab provincial minister Mian Aslam.
Suicide bombers blew themselves up at the shrine in 2010, killing 50 people and injuring at least 200 others.
Entry to the Data Darbar was sealed in the aftermath of the blast.
"We condemn this cowardly act", he said and also confirmed it was suicide attack.
Since an attack in a Lahore park targeting Christians celebrating Easter in 2016 killed more than 70 people, Pakistan's second largest city has been largely quiet although an attack previous year killed nine people.