Local media showed extensive damage to the facades of nearby houses, and witnesses reported a strong explosion.
However a North Atlantic Treaty Organisation spokesman denied any foreign troops had been injured, while the Australian embassy said the blast had come as one of its convoys was passing by.
Bismillah Tabaan, the police commander of the city's ninth district where the explosion took place, said the cause of the blast was a suicide bombing but details, including the target, were not yet clear.
Uzbekistan has formally invited Pakistan to participate in the International Conference on the Afghan Peace to be held in its Capital Tashkent on March 26-27, 2018.
Ghani proposed a ceasefire and a release of prisoners as part of a range of options including new elections, involving the militants, and a constitutional review as part of a pact with the Taliban to end a conflict that a year ago alone killed or wounded more than 10,000 Afghan civilians. Gresback said no North Atlantic Treaty Organisation service members were injured in the incident.
A statement from Ms Bishop said: "Today, a suspected vehicle-borne Improvised Explosive Device was detonated near Australian Embassy vehicles while they were travelling in Kabul". A security source confirmed the embassy's account to AFP.
In the meantime, another security official says at least fourteen people were wounded in the explosion.
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The official, who did not identify the suspects by name, said the manager drove off with the auto before it was stopped by police. Raine, according to police, was behind the wheel and allegedly had a blood-alcohol level more than three times the legal limit.
The blast came days after Afghan President Ashraf Ghani revealed a plan for peace talks with the Taliban, including a proposal to recognize them as a political party in the country.
Ghani revealed his plans in a speech during worldwide peace talks in Kabul this week that went better than expected, with officials in Washington daring to hold out hope that the longest war in USA history may be heading to a negotiated settlement.
According to reports, the Islamic State of Iraq and Syria (ISIS) terrorist group loyalists had claimed responsibility behind the attack.
The Conference will look to finding a peaceful solution to decades of war in Afghanistan by bringing the Afghan government, the Taliban and other warring parties into direct peace talks as the initial process.
They also discussed counter-terrorism measures.
Kabul remains on high alert, fearing further attacks and violence. American officials are also braced for more fighting in the spring.
Similar attacks in the past have been claimed both by the Taliban and by pro-Daesh armed groups.