The incident took place in the Nasir Bagh area on the outskirts of Peshawar.
"The children, including a girl and two boys, brought home a bomb concealed in a ball, which exploded with a bang killing a woman and wounding her two boys and a niece," senior local police official Shafeerullah Khan told AFP.
The dead woman was aged 32. Her wounded niece is four years old, and her two sons seven and nine, police said.
Local police official Haqdad Khan confirmed the casualties.
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