Senior Superintendent Karib Muamil, Zamboanga del Sur provincial police director, identified the two wounded bystanders as Arvin Fontanilla and Alver Linse, both residents of Tiguma Village, Pagadian.
Muamil said witnesses saw two unidentified men hurl the fragmentation grenade in front of the residence of a certain Ferdinand Pulmones at about 8 p.m. on Saturday.
The suspects quickly fled aboard a motorcycle toward the city proper.
"Pulmones denied any business conflict or possible rivalry or feud with any individual," Muamil said.
But sources disclosed that the attack may have been intended on a nearby post of the police Regional Special Action Force (RSAF).
A close relative of Pulmones said that the attack could be directed at Pulmones, a known businessman in the area.