At least seven people have been killed by a powerful explosion building in the Shar-e-Naw area in central Kabul, where aid agencies are also located, Afghan officials say.

The blast went off near a building housing a private US security firm that works for Afghan President Hamid Karzai, the officials said. The blast also destroyed several vehicles and damaged buildings in the area, housing a number of aid agencies, including two buildings of the Adventist Development and Relief Agency (ADRA-Afghanistan).

A huge crater was seen outside the Taleban militants told Reuters news agency it was a suicide car bomb attack by one of their fighters. The agency quoted Taleban spokesman Abdul Latif Hakimi as saying the bomber died in the attack.

Al-Jazeera satellite television said it had received telephone calls from Taleban spokesmen who said the attack had targeted US forces, not Afghans.

It was not immediately clear how many Americans were among the dead, but reports said at least two foreigners were killed. The death toll is likely to rise, officials said.

The BBC's Andrew North reports that the sound of the explosion, which happened just before 1800 local time (1330 GMT), was heard across Kabul.

The Kabul attack came just hours after an explosion at a school in southern Afghanistan killed at least 10 people, many of them children, the US military said.

The building that was hit in Kabul is used by Dyncorp, an American security firm which provides bodyguards for President Karzai and also helps with police training.

A western security adviser whose office is nearby said there was now a huge crater outside the building. Police rushed to seal off the area, as fire and smoke billowed up and sirens wailed. Witnesses said there was extensive damage.

According to a Swiss staff member of ADRA Afghanistan, the windows and doors of the two ADRA buildings nearby have been damages by the blast. Several debris from the car bomb lie in the garden area. Office and apartment rooms are full of glass splinters. Fortunately only one staff member have been slightly injures by pieces of broken glass.

There have been growing fears that militants opposed to the Afghan government will carry out bomb attacks in Kabul ahead of elections in October, BBC correspondent Andres North says.