There were no immediate reports of casualties but an AFP photographer saw the mangled wreckage of a burning vehicle at the scene of the blast, which struck outside a civilian hospital.
"There has been an explosion in the Fourth Macroyan residential neighborhood of Kabul city," Fraidoon Obaidi, the head of Kabul's Criminal Investigation Department, told AFP.
"We are investigating the nature of the bombing and whether there are any casualties."
The heavily-fortified US embassy, located a few kilometers away in the center of Kabul, sounded its emergency sirens and loudspeakers broadcast a "duck and cover" alarm warning.
The blast comes amid heightened security in Kabul after a wave of bombings that killed more than 50 people and wounded hundreds, prompting fury from President Ashraf Ghani who blamed Pakistan for failing to rein in Taliban insurgents.
The Taliban are stepping up their summer offensive, launched in late April, amid a bitter leadership dispute following the announcement of the death of longtime leader Mullah Omar.