The blast, which occurred about 3.30pm local time on Friday, left at least a dozen people injured amid fears "hundreds" had died.
There were, however, no immediate reports of casualties from the blast, which occurred at the government headquarters which house the offices of Jens Stoltenberg.
It remains unclear what caused the blast or if it was a terrorism attack. The Prime Minister was reported to be safe.
The cause of the blast was unknown but the tangled wreckage of a car was outside one building.
The damage appeared consistent with that from car bombs. Police and fire officials declined to comment on the cause.
Oslo blast seen from the sky
Injured people were seen lying on the street in pools of blood. Heavy debris littered the streets and smoke rose over the city centre.
The 17-storey building, which also houses Norway's biggest tabloid newspaper VG, was reported to be on fire, with thick black smoke being seen for miles.
Witnesses reported the massive blast blew out most windows in the building as well as nearby government departments including the oil ministry, in Norway’s capital and most populated city.
The bottom floor appeared to be completely gutted
"I'm still in my work office and people here seem pretty freaked out and are ringing around friends and relatives like mad," Ruarí Ødegaard, an exatriate Briton living in Oslo told The Daily Telegraph.
"Also can hear quite a few police sirens even where I am."
Mr Odegaard, 34, whose wife is Norwegian, moved to Oslo in 2008 after growing up in Frimley, Surrey.
"The local media seem very confused," he said.
"One minute NRK (national media like BBC) reported two explosions and then a moment later they retracted. So far no reports of deaths just injuries but again no figures as to how many."
Users on Twitter also described sheer panic.
"I fear that many 100s could be dead. Poor poor poor guard that worked in the first floor. :(:(," one local trader posted on Twitter.
He added later: "There has not been any more blasts in Oslo after the one. It is confirmed that it was indeed a bomb."
Another witness told public radio NRK: "I see that some windows of the VG building and the government headquarters have been broken. Some people are covered with blood are lying in the street.”
Ingunn Andersen, a local journalist, said: "There is glass everywhere. It is total chaos. The windows of the all the surrounding buildings have been blown out."
Kjersti Vedun, who was leaving the area, added: It exploded - it must have been a bomb. people ran in panic and ran. I counted at least 10 injured people."
Witness Ole Tommy Pedersen was standing at a bus stop about 100 yards from the high-rise when he saw the blast shatter almost all windows of the highrise. He said a cloud of smoke is billowing from the bottom floors.
"I saw three or four injured people being carried out of the building a few minutes later," he said.
Other offices are being evacuated.
No other details were immediately known.
NATO member Norway has sometimes in the past been threatened by leaders of al Qaeda for its involvement in Afghanistan.
But political violence is virtually unknown in the country.
David Lea, Western Europe analyst, at Control Risks said: "It's very difficult to tell what has happened. There certainly aren't any domestic Norwegian terrorist groups although there have been some al Qaeda-linked arrests from time to time.
"They are in Afghanistan and were involved in Libya, but it's far too soon to draw any conclusions."