Several people were killed in fierce early morning fighting when Boko Haram gunmen attempted to advance toward the town but were pushed back by the army, military sources said. Residents reported hearing heavy weapons fire.
Hours later, an explosion in Diffa's market killed at least one person and left 20 injured, six of them in a serious condition, according to a doctor in the town hospital.
Residents had initially said the explosion was caused by a suicide bomber. However, Defense Minister Mahamadou Karijo - visiting Diffa to pay homage to soldiers killed in Friday's attack - said the detonation was due to a stray shell.
"This morning, there was shelling by the terrorists and unfortunately a shell fell on the market. There was one person killed and six wounded," he told state television.
"The situation is under control and we hope that tomorrow parliament will authorize us to go on the offensive," the minister added, accompanied by his Chadian counterpart.
An emergency services worker had earlier told Reuters at least five people died in the attack.
Authorities imposed a curfew in the town from 8 p.m. to 6 a.m. (1400 ET to 0000 ET).
Neighboring Chad has deployed some 2,500 troops to Niger's southern border region and to Cameroon ahead of a planned military offensive by regional powers against Boko Haram.
Niger's parliament is due to vote on Monday on a proposal to send its troops into Nigeria to help fight Boko Haram.
On Saturday, the governments of Cameroon, Chad, Niger, Nigeria and Benin agreed to establish an 8,700 strong regional force.
Chadian forces already crossed into Nigeria last week to the south of Lake Chad to attack Boko Haram in the town of Gambaru, bordering Cameroon.
In several towns across Cameroon, tens of thousands of people took to the streets on Saturday to show their support for the army in the struggle against Boko Haram.
The militant group has killed scores of civilians and soldiers in cross-border attacks in recent months, including more than 50 in the town of Fotokol last week in an apparent reprisal for the Gambaru offensive.
Boko Haram has seized territory in northeastern Nigeria as part of a five-year insurgency to carve out an Islamist state on the territory of Africa's top oil producer and biggest economy. Around 10,000 people were killed last year.
Political analysts say the rebellion has been fueled by anger over government neglect of the impoverished corner of the arid Sahel region, which has also been struck by severe drought in recent years.
Nigeria's electoral commission on Saturday postponed a presidential election that had been scheduled for next weekend until March 28 due to concerns over Boko Haram's insurgency.