A plume of thick black smoke was seen over the city and witnesses said a number of vehicles were on fire.
"It looks like a car bomb, but we don't have details yet," security official Mohamed Abdikadir told AFP.
The powerful blast comes just days after the Al-Shabaab members claimed a massive car bombing in Mogadishu on December 28 that killed 81 people, and their storming of a military base in Kenya used by US forces on Sunday.
"There was smoke and chaos along the road, the blast was very heavy and I was on my way to the location where it occurred," said Shamso Ali, one of the witnesses to Wednesday's explosion.
"Thanks to God I was a distance away but I saw the smoke and several vehicles caught on fire," he said.