China's Ministry of Public Security said the attack was "a serious violent terrorist incident" and vowed to crack down on its perpetrators. President Xi Jinping called for the terrorists behind it to be "severely" punished.
Two SUVs plowed into people gathered at the open market in Urumqi at 7:50 a.m., and explosives were thrown out of the vehicles, China's official news agency Xinhua said.
One of the SUVs then exploded, according to Xinhua, which cited a witness in the market who said he heard a dozen big bangs.
Images circulating on social media showed flames and smoke billowing out from the end of a tree-lined street guarded by police officers. Other pictures showed wounded people being carried away from the scene of the blasts.
All of the wounded have been taken to several hospitals in the area, Xinhua reported, citing police.
String of recentattacks
The attack at the market comes less than a month after an explosion hit a train station in Urumqi, killing three people and wounding 79 others.
That blast, described as a terrorist attack by Chinese authorities, took place on April 30, just after Chinese President Xi Jinping had wrapped up a visit to the restive region.
Chinese officials have linked a mass knife attack in March that killed 29 people at a train station in the southwestern city of Kunming to Islamic separatists from Xinjiang.
They have also blamed separatists for an attack in Beijing's Tiananmen Square in October in which a car rammed into a pedestrian bridge and burst into flames, killing two tourists and the three occupants of the vehicle.
The knife-wielding assailants in the Kunming attack and the people in the car that hit Tiananmen were identified as Uyghurs, a Turkic-speaking, predominantly Muslim ethnic group from Xinjiang.
Ethnic tensions between Uyghurs and Han Chinese people, millions of whom have migrated to resource-rich Xinjiang in recent decades, have repeatedly boiled over into deadly violence in recent years.
Uyghurs say they resent harsh treatment from Chinese security forces and Han people taking the lion's share of economic opportunities in Xinjiang. The Han are the predominant ethnic group in China, making up more than 90% of the overall population.
The deadliest violence in decades took place in July 2009, when rioting and clashes in Urumqi between Uyghurs and Han Chinese killed around 200 people and wounded 1,700. That unrest was followed by a heavy crackdown by Chinese authorities.