Reports said the massive explosion close to the German embassy wounded or killed at least 60 people.
The blast 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.
External Affairs Minister Sushma Swaraj tweeted that Indian embassy staffers were safe.
Official sources at the Ministry of External Affairs in New Delhi, however, said some damage to the windows of the embassy building has been reported.
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An eyewitness told the local Pajwok news agency that the blast took place close to the German embassy and foreign forces camp. It cited anoter 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.