A bomb struck in the early hours of Saturday morning in the centre of the town of Bordj Menaiel, near the local police headquarters, killed two, said a local security source, who did not want to be identified.
Al Qaeda's north African branch frequently attacks security forces in rural areas of Algeria, but it has been months since there have been any bomb attacks in the centre of a town.
A police officer was one of the two killed, said the source. He said several others had been seriously wounded in the attack and the death toll was therefore likely to rise. There was no official confirmation of the attack.
Algeria, an energy exporter in North Africa, is still emerging from nearly two decades of conflict between security forces and Islamist militants that, at its peak in the 1990s, killed an estimated 200,000 people.
In the past few years the violence has been reduced significantly, but the militants -- who now operate as Al Qaeda in the Islamic Maghreb (AQIM) -- still carry out ambushes, kidnappings and occasional bombings.
Bordj Menaiel is in the mountainous Kabylie region, where AQIM has its headquarters for northern Algeria, and where many of the attacks are concentrated.