The blast, which came the morning after a gun and bomb siege near the Indian consulate in a northern Afghan city, was some 200 meters from the consulate in Jalalabad, an Indian diplomatic source there told AFP. There were no reported injuries at the scene.
The explosion also follows a bloody weekend assault on an air base in India near the Pakistan border.
But Vikas Swarup, a spokesman for India's ministry of external affairs, told AFP the consulate "was not the target".
The area also houses the consulates for Pakistan and Iran.
Ataullah Khogyani, a spokesman for Nangarhar province's governor, said authorities were unsure who the target was but that a police convoy had been passing when the blast went off.
"The explosives were placed in a garbage can," he added.
The attack was not immediately claimed but Indian interests have been targeted twice since Saturday in spectacular assaults, one against its consulate in Mazar-i-Sharif, and the other by insurgents on an air force base in the northern Indian state of Punjab.
No one has yet claimed responsibility for the 25-hour siege in Mazar-i-Sharif that ended late Monday.
The spike in violence came roughly a week after Indian Prime Minister Narendra Modi paid a surprise visit to Pakistan followed by a whirlwind tour of Kabul.
India has been a key supporter of Kabul's post-Taliban government, and analysts have often pointed to the threat of a "proxy war" in Afghanistan between India and Pakistan.
The Taliban have also stepped up attacks on government and foreign targets in Afghanistan, including a series of assaults in Kabul over the weekend, underscoring a worsening security situation.