The Taliban claimed responsibility and said their fighters were still battling police in Kabul and that they had allegedly killed several people.
However, Interior Ministry spokesman Seddiq Seddiqi said no one was killed except two insurgents. He said everyone inside the building that the Taliban took over was safely evacuated, adding that two civilians and two security forces were wounded. He would not confirm the nationality of the wounded, nor would he identify the building.
Details of the attack remained sketchy. Three hours after the blast, which shook much of the city, fighting was still going on in the upscale Shahr-i-Now neighborhood.
Police officer Latif Khan, director of the city's District 4, said the explosion was a suicide attack but could give no further information on the ensuing shootout.
The exact target of the attack was unclear. The explosion took place near a hospital that services the National Security Directorate, the state intelligence agency. Police quickly cordoned off the area, which also houses buildings used by several international aid agencies.
A restaurant owner in the district, Adel, who gave only one name as is customary among Afghan men, said his cc-camera footage at the restaurant showed four gunmen in the street outside. He said he ran away with his staff.
"When I saw these four attackers, we decided to get away," said Adel, who was running as he spoke to The Associated Press.
Dozens of Afghan police were rushed to the scene in trucks and took up positions around the area. At least one wounded officer was seen being helped away by his comrades.
It was the second explosion to hit Kabul in just over a week.
Last Thursday, a suicide car bomber killed six Americans, including two soldiers, and nine Afghan bystanders in an attack on a U.S. convoy.
The attacks broke two months of relative calm in Kabul. As the Taliban spring offensive gets underway, it will test the Afghan forces' ability to keep security now that international combat forces are pulling back ahead of the 2014 withdrawal.
Most of the U.S.-led military coalition will leave by the end of next year, more than a dozen years after launching the war to topple the Taliban rule over its sheltering of al-Qaida's leadership.
Taliban spokesman Zabiullah Mujahid told the AP over the phone that Friday's attack started with a car bomb that blasted open the gates of a compound used by foreigners linked to the CIA.
Insurgent fighters then entered the building and began fighting police, Majahid said. He said he was in contact with the attackers whose "morale is high" despite the fierce fighting.
But the Interior Ministry spokesman, Seddiqi, said that two of the attackers were shot dead as they fired on security forces and that one or two were believed to be still in the building.
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