Videos of the incident were posted to social media and widely shared, depicting scenes of carnage and chaos in the square, which was crowded for an event.
An SUV entered Binjiang square in Hengyang city, Hunan province, at 7.40pm local time Wednesday (5.40pm AEST).
The local government immediately sent emergency services to treat the wounded while police arrested the driver, according to the Hengdong Communist Party Committee propaganda department.
The driver, Yang Zanyun, 54, first ploughed through the people with his vehicle and later got out of it and went on a rampage attacking people with a knife.
An investigation has begun, the statement said, but there was no mention of terrorism as a possible motive. He was a known criminal having served various prison sentences for arson and assault convictions.
A local government statement described it as a "deliberate, malicious case of driving with intent to injure". Bodies were seen lying in the square as people fled the area en masse, screaming and crying.
China has experienced several violent attacks in public places in recent years, including bombings and arson attacks on buses and buildings, sometimes by people trying to settle personal scores or grievances against society.
Nine people were killed and 46 others were injured, state-run Global Times reported. Police blamed the attack on Muslim separatists from the Uighur ethnic minority group.
Officials said in the hours after the attack that nine people had been killed.