Bridget Abihime, 74, was accused of saying the Islamic prophet was "not important" before the incident.
She was trying to close her store in a local market when another stall owner blocked her path and started praying.
Nigeria
Leader: President Muhammadu Buhari
Population: 187 million
Christians: 84 million
World Watch List Rank: 12
It's believed he had a running feud with the woman and when she asked him to move he claimed she had insulted his God.
Police said two people had been arrested in connection with her murder.
Officers promised justice for the Christian community after the attack in the mainly Muslim Kano region of Nigeria.
Police chief Solomon Arase urged faith leaders to help in "dousing the tensions".
Revd John Hayab from the Christian Association of Nigeria is quoted by AP as saying there is a "looming religious crisis".
"This barbarism must stop now," he said.
Dr Khataza Gondwe from religious freedom group Christian Solidarity Worldwide told Premier's News Hour the claim she had insulted the prophet was made up to ensure she was attacked.
She said: "This case went viral on social media before [police] actually took a lot of action.
"It's been condemned at the highest level including by the president and two Islamic associations.
"We are hoping there will be justice but the mob mentality can restrict the kind of justice you can get.
"This has to be stopped now otherwise there's going to be complete impunity and lawlessness."
Tensions between Christians and Muslims in the north are high amid an ongoing campaign of violence by the extremist Islamic group Boko Haram.
Dr Khataza Gondwe speaking to Premier's Antony Bushfield:
