Extensive damage to the facades of nearby houses could be seen with debris scattered on pavements as witnesses reported a strong explosion. Security forces rushed to the scene as passers-by helped move the wounded, with witnesses complaining to AFP that ambulances took around half an hour to arrive.
A horse was also badly injured in the blast and could be seen stumbling at the scene -- its head, belly and legs burnt -- before it was finally taken pity on and killed on the spot with a knife, an AFP reporter at the scene said.
NATO's Resolute Support mission in Kabul told AFP it was checking if there had been any foreign casualties in the blast.
A health ministry spokesman confirmed that one person was killed and at least nine injured, all civilians.
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The one killed was a child, a security source and witnesses at the scene told AFP, with the security source adding that up to 12 people had been injured.
The bombing comes just two days after Afghan president Ashraf Ghani unveiled a plan for peace talks with the Taliban, including a proposal to eventually recognise them as a political party.
Ghani revealed his plans in a speech during international peace talks in Kabul this week that went better than expected, with officials in Washington daring to hold out hope that the longest war in US history may be heading to a negotiated settlement.
Before Ghani's speech, the militants had called for direct talks with the US. They have not yet offered a full response to the president's proposal, but the apparent openness to negotiations on both sides has sparked cautious optimism.
More than 16,000 foreign troops are deployed in Afghanistan under the NATO mandate, mostly Americans who supervise Afghan forces and conduct counter-terrorism operations.
Despite the optimism, Kabul remains on high alert, fearing further violence. American officials are also braced for more fighting in the spring.
Since mid-January, militants have stormed a luxury hotel, bombed a crowded street, raided a military compound and launched a suicide attack during morning rush hour in the capital, killing more than 130 people.