Prime Minister Recep Tayyip Erdogan blamed the blast on the outlawed Kurdistan Workers' Party (PKK), which had threatened to spread violence to urban areas after a string of bloody attacks on the army in the southeast.

"The terrorist organisation knows very well that it will not get anywhere with such attacks... This is a dead end," Erdogan said in parliament in Ankara.

There was no formal claim of responsibility for the bus bombing and nobody was immediately detained, officials said.

The bus, carrying soldiers and their families, was passing through Halkali, a suburb on Istanbul's European side home to military lodgings, when the bomb went off early Tuesday.

"This is a terrorist attack," Istanbul Governor Huseyin Avni Mutlu told reporters. "According to initial information, it was a remote-control bomb planted at the side of the road."

The governor said the blast killed three soldiers, on their way to work at the headquarters of Istanbul's paramilitary police, and a 17-year-old girl, the daughter of an officer, and wounded 12 people, two of them seriously.

The death toll reached five later Tuesday as a soldier succumbed to his injuries in hospital, Anatolia news agency reported.

The Turkish army meanwhile said seven PKK militants were killed overnight in two separate clashes.

Five were shot dead after they attacked a gendarme station in southeast Turkey, killing one soldier. Two others were killed in a security operation in the northwest.

The PKK, listed as a terrorist group by Ankara and much of the international community, threatened attacks in Turkish cities as it killed 12 soldiers over the weekend.

Most of the troops died when dozens of rebels attacked a border unit at the Iraqi frontier, prompting a Turkish air raid on PKK hideouts in northern Iraq, where the rebels have long taken refuge.

The PKK has stepped up violence since its leader Abdullah Ocalan, serving a life sentence in a Turkish jail, said through his lawyers last month he was abandoning efforts to end the 26-year Kurdish conflict through dialogue with the government.

Ankara has rejected talks with the PKK though it has pledged to boost Kurdish freedoms and economic development in the southeast in a bid to discourage separatism and cajole the rebels into laying down arms.

The faltering initiative, announced last year, has met with public hostility amid persisting PKK violence, but Erdogan insisted Tuesday he remained committed to reform.

"We will not step back... We will not disappoint our (Kurdish) people once again," he said. "The terrorist organisation can never be the representative or the spokesman of our Kurdish citizens."

The PKK targets mainly the security forces but it has carried out also bomb attacks on civilians in the past.

In 2008, it was blamed for two explosions at a crowded street in Istanbul's Gungoren district which killed 17 people and wounded more than 150.

In 2005, five people, among them Irish and British tourists, were killed when a PKK militant detonated a bomb on a minibus in the Aegean resort of Kusadasi.

The PKK took up arms for self-rule in the mainly Kurdish southeast in 1984, sparking a conflict that has claimed some 45,000 lives.