Afghanistan’s Interior Ministry officials said that the blast was caused by a suicide bomber, adding that at least 10 people have been killed and dozens injured in the incident.
Ambulances were struggling to reach the scene as authorities had overnight blocked key intersections with stacked shipping containers to prevent protesters from marching on the presidential palace.
The nature of the blast was not immediately clear, Fraidoon Obaidi, chief of Kabul's Criminal Investigation Department, told AFP.
No group has so far claimed responsibility for the blast, but it comes in the middle of the Taliban's annual summer offensive, which the insurgents are ramping up.
"I was in the crowd of protesters when a loud bang occurred nearby. Many people have been killed or injured -- I am in deep shock," protest organizer Jawad Naji told AFP.
The demonstrators had gathered to demand that a multi-million-dollar power line pass through their electricity-starved province of Bamiyan, one of the most deprived areas of Afghanistan with a large Hazara population.
The 500-kilovolt TUTAP power line, which would connect the Central Asian nations of Turkmenistan, Uzbekistan and Tajikistan with electricity-hungry Afghanistan and Pakistan, was originally set to pass through the central province.
But the government re-routed it through the mountainous Salang pass north of Kabul, saying the shorter route would speed up the project and save millions of dollars.