Moscow- President Dmitry Medvedev warned of the ongoing threat of terrorism on Friday as the death toll rose to 12 in a suspected suicide bombing of a minibus in the worst attack in over a year in Russia's troubled North Caucasus region.

"This event showed that the threat of terrorism endures. It is not the time yet to back down," Medvedev was quoted by news agency Interfax as saying Friday.

The explosion Thursday hit passenger exiting a crowded minibus at the entrance to a movie theatre and market on a main street of the populous capital of North Ossetia, Vladikavkaz. The regional Interior Ministry said it blamed a terrorist act.

"According to preliminary information, the explosive device was detonated by a female suicide bomber," the press service of North Ossetian leader Taimuraz Mamsurov said in a statement on his website.

Mamsurov told Interfax news agency that the head of the woman, suspected to be the suicide bomber had been found inthe wreckage.

"Fragments of the body of a woman who could be the suicide bomber were discovered," the head of the General Prosecutor's investigative unit Alexander Bastrykin said. "Investigations are underway to identify the woman and other victims."

Russian President Dmitry Medvedev ordered the prosecutors to work with Russian FSB security services to heighten security in the region and move forward with the investigation, the Kremlin said Friday.

"Despite the fact that active terrorist cells have been supress, the atmosphere still exists for such incidents," Medvedev said at meeting with law-enforcement bodies in St Peterburg.

Seven people died at the site of the bombing and 5 died in the hospital where 42 people, including one child, were being treated for injuries, Bastrykin told Itar-tass.

The North Ossetian government has pledged 325 thousand rubles (12,000 dollars) to the families of the victims.

Russian television showed the minibus still smoking and charred as crowds gathered around a police cordon after the blast. Bodies were lying in the road outside the twisted van doors.

The United States condemned the attack as "a heinous act of terrorism" and expressed its condolences to the Russian victims.

The regional capital of Vladikavkaz has been the target of many terrorist acts blamed on Islamist militants in the aftermath of the Kremlin's war to quell an insurgency in the neighboring republic of Chechnya.

The explosion on Thursday highlighted the fragility of security in the region hit by tragedy when gunmen stormed the Beslan school in a hostage debacle in 2004 that claimed more than 300 lives, mostly children.

Hospital staff in Vladikazkaz said they were reminded of hostage-taking as they saw their wards filled with refugees and soldiers injured in Russia's conflict with Georgia just across the border in South Ossetia.

The city is separated by the 4-kilometre-long Roki tunnel from Georgia's breakaway region and is the base for Russia's 58th army which deployed into South Ossetia in August to push back a Georgian assault to retake the region. (dpa)