The explosion occurred around 11 p.m. outside an apartment building and was strong, Swedish Radio News reports.
"When we arrived, there was broken glass on the road and the building is damaged," police spokesman Stephan Söderholm says.
Nobody was hurt in the incident.
The police believe many of the explosives used in Malmö this year come from the Balkans.
Last September, thanks to an international operation, the police seized 100 grenades which were being transported to Stockholm from the former Yugoslavia.
"We have control, but these crimes - it's very difficult to investigate them," Malmö police chief Stefan Sintéus tells Radio Sweden, explaining, "it's not the criminal elements who do the shootings and throw the hand grenades. It's people who... young boys, 14, 15 years, they use these to do these criminal acts, so to prove that these young guys have taken these jobs from these organized (criminals), it's very, very difficult for us to prove."