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The whole caused by the bomb in the roof. YO Photo/M. Sharabi
Eyewitness said that an unidentified man threw the grenade at around noon into the market crowded with shoppers buying qat before fleeing, Saba news reported.
News agency reports and the Raynews website reported that the grenade killed four people immediately, while three others later died from their wounds.
However a spokesman in the Ministry of Interior later reported that there were "no deaths" caused by the blast.
He denied earlier media and eyewitness reports that people had been killed, warning the media to be 'careful' in publishing such news.
Witnesses said the attacker fled in foot among the market stalls, and police said no one had been arrested.
Security forces have sealed off the area and have launched a hunt for the attacker, police said.
An anonymous security source said that while investigations in the motive for the attack were continuing, initial investigations suggested the man threw the grenade after a quarrel in the market.