The Islamic State of Iraq and the Levant (ISIL) group has claimed responsibility for a suicide car bomb attack near the Iraqi embassy in Kabul on Monday, the group's Amaq news agency reported.
Sources tell Al Jazeera that fighters are holed up in a building close to the embassy in Shar-e-Naw and a gun battle is under way.
"We heard two explosions near the Iraqi embassy and part of the building has been damaged," Mohsen Negaresh, a witness, told Al Jazeera.
Police confirmed the blast had taken place, but said they did not immediately have further information.
The Iraq Embassy is located in a part of the city known as Shahr-e-Now, which lies outside the so-called "green zone" where most foreign embassies and diplomatic missions are located and which is heavily fortified with a phalanx of guards and giant cement blast walls.
By comparison, the Iraqi Embassy is located on a small street in a neighbourhood dominated by markets and businesses.
The attack comes a week after at least 35 people were killed in a suicide attack on government workers in Kabul and underlines the precarious security in Afghanistan as the US administration considers an overhaul of its policy in the region.
Last week's attack was claimed by the Taliban. A spokesman for the insurgent movement said he had no immediate information on Monday's attack.
Source: Aljazeera