The explosion was so powerful that it smashed windows of the buildings nearby and a huge plume of smoke could be seen spiralling over the area near the presidential palace and other foreign embassies in the Afghan capital.
In New Delhi, External Affairs Minister Sushma Swaraj tweeted that all Indian embassy staffers were safe.
The Indian envoy in Kabul, Manpreet Vohra, said the bomb went off around 100 metres from the embassy.
Official sources at the Ministry of External Affairs said the explosion caused some damage to the embassy building, but all employees were safe.
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Prime Minister Narendra Modi, who is in Spain as part of his visit to Europe, condemned the attack.
He said India stands with Afghanistan in fighting all forms of terrorism. "We strongly condemn the terrorist blast in Kabul. Our thoughts are with the families of the deceased & prayers with the injured," he tweeted.
The massive explosion close to the German embassy in Kabul during the morning rush hour killed more than 80 people, news reports said.
It was not immediately clear what was the target.
An eyewitness told the local Pajwok news agency that the blast took place close to the German embassy and foreign forces camp. It cited another source as saying the explosion happened in front of the office of the National Directorate of Security (NDS), Afghanistan's primary intelligence agency.
Houses hundreds of metres away from the blast site were damaged and windows and doors blown off their hinges. Bodies and injured people were seen in the area. Some women were seen screaming for the lost relatives at the site of explosion.