The rush-hour bombing, which sent a plume of smoke into the sky, wounded at least three civilians including a child, as the Taliban ramp up attacks on government and foreign targets.
The intensity of the blast sent an armoured vehicle crashing into a sidewalk, its front end badly mangled, and left the area littered with charred pieces of twisted metal.
"The incident took place while a suicide car bomber detonated an explosive-packed car in the Joy Shir area... Of Kabul city," the interior ministry said.
Security forces cordoned off the area as ambulances with wailing sirens rushed to the scene, but officials said the human toll of the blast was limited.
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"The ministry of interior condemns in the strongest terms the suicide attack which resulted in the wounding of three civilians," the ministry said.
The Kabul police said the wounded included a woman and a child.
A NATO spokesman in Kabul confirmed that their convoy came under attack but said the international coalition was still gathering further information.
The emboldened insurgents have stepped up attacks around Afghanistan since they launched their annual summer offensive in late April.
The seizure of the provincial capital for three days was a stinging blow to Western-trained Afghan forces, who have largely been fighting on their own since the end of NATO's combat mission in December.
The Taliban said that today's bombing was carried out to avenge the recent "barbaric bombardment" in Kunduz by foreign and government forces.
"A Toyota sedan packed with explosives was used in the attack. Two military tanks were destroyed and 12 foreigners were were killed," the group's spokesman Zabihullah Mujahid said in a statement.
The government claims to have wrested back control of Kunduz city but sporadic firefights continue with pockets of insurgents as Afghan soldiers, backed by NATO special forces, conduct clearance operations.
As fighting spreads in neighbouring Badakhshan, Takhar and Baghlan provinces, concerns are mounting that the seizure of Kunduz was merely the opening gambit in a new, bolder strategy to tighten the insurgency's grip across northern Afghanistan.