An estimated 231 people were wounded after two suicide bombers targeted a peaceful demonstration in Kabul's Dehmazang Square.
At least 10,000 people were taking part in the protest, according to event organizer Mohammad Arif Rahmani.
Most of the protesters were Hazaras, a Shiite minority from central Afghanistan, who have long suffered discrimination and opression, especially under Taliban rule when thousands from the tribe were killed.
The Hazara minority ethnic group makes up 22 percent of Afghanistan's Sunni-dominated population.
The Interior Ministry's statement said that two attackers detonated their suicide vests, while "one was killed by Afghan security forces."
Earlier, the Health Ministry said 64 people had been killed and 265 were wounded.
Islamic State claimed responsibility for the attack, writing on its affiliated Aamaq News Agency that two of its fighters carried out the attack.
"Abu Ali, an Islamic State commander in Achin district of Nangarhar [an eastern Afghan province], reported to his commanders that three suicide bombers penetrated the demonstration in Dehmazang," an Afghan intelligence official, who spoke on condition of anonymity, said.
The Hazaras are one of the poorest and least-assisted groups in a country where billions of dollars in aid have poured in since 2001.
Hazaras have been targeted in both Pakistan and Afghanistan in recent years.
The protesters were demanding that the construction of an electrical transmission line from Turkmenistan to Pakistan via Kabul be rerouted through their province of Bamyan, which is not currently connected to Afghanistan's central electricity grid.
The Afghan government had rejected the protesters' demands, citing further delays and added costs.
Islamic State has been known to carry out brutal attacks against Shiites in Iraq and Syria, but this is the first attack they have claimed in Kabul against an ethnic minority.
Afghan President Ashraf Ghani said he was "deeply saddened" by the attack, adding that security forces were among the casualties.
Afghan Chief Executive Abdullah Abdullah condemned the attack.
NATO's Resolute Support Mission and the US embassy condemned the attack as "cowardly."
Pakistan's Foreign Ministry also "strongly condemned," the "dastardly terrorist acts" in Kabul.
Images on social media showed horrific scenes with scores of people wounded in the square where the protesters had gathered.
Taliban militants denied any involvement. "We want to make it clear Our Mujahideen had no hand in the attack," Taliban spokesman Zabihullah Mujahid wrote in an email.
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