Witnesses said two cross-country vehicles ploughed into people in the busy market at 7:50 a.m and explosives were thrown out of the cars by persons sitting next to the drivers, state-run Xinhua news agency reported.
One of the vehicles exploded in the market causing heavy casualties.
At least 31 people were killed and 90 others injured in over dozen explosions, Xinhua said.
Injured were rushed to different hospitals, police said.
As the news broke out, President Xi Jinping vowed to severely punish terrorists and spare no efforts in maintaining stability, Ministry of Public Security said, describing the incident as a “serious violent terrorist incident”.
Pictures released on Weibo, akin to Twitter, showed widespread damage with several bodies lying in the street besides thick smoke raising above Urumqi’s skyline.
A businessman in the market told Xinhua he heard a dozen of big bangs.
The open air morning market is located near the Renmin Park in downtown Urumqi.
Ambulance and police cars parked at the entrance of the street leading to the market helped evacuate the injured.
Flames and heavy smoke were seen nearby while the area had been cordoned off after the blast.
Xinjiang, bordering Pakistan-occupied Kashmir and Afghanistan, has been plagued by violence for years.
Chinese officials suspect that the explosions were caused by the East Turkistan Islamic Movement, an al-Qaeda affiliate, which has been blamed for a spate of recent violence including the dreaded knife attacks in and out of Xinjiang province.
Xinjiang region has witnessed riots between native Muslim Uygurs and Han settlers from outside the province.
Uygurs, a Turkic speaking community, resent the settlements as they believe the large scale migration is marginalising them in their own homeland.
Today’s incident was regarded as the worst violence as militants who largely confined to knife attacks used multiple explosives besides triggering a car bomb.
Last month Xinjiang was the scene of a railways station attack which killed three and injured 79 people. The attack was blamed on radical religious extremists seeking to take control of the region.
Police will step up patrols and security control over possible terrorist targets and prevent ripple effects, President Xi said in a statement.
He asked local authorities to solve the case fast, put the injured under proper care and offer condolences to families of the victims.
The Chinese government will continue to work hard in fighting terrorism and try its best to safeguard social stability, he said.
A working group led by Minister of Public Security Guo Shengkun has left for Xinjiang to supervise the investigation and handle the crisis.
Minister of public security Guo rushed to Urumqi to supervise the investigation into the explosions, China National Radio reported.
In a statement Public security chief Meng Jianzhu vowed to “destroy the arrogance of violent terrorists”.