Firefighters said power cables had started a fire beneath the pavement in Holborn and they could not put it out until the current was switched off.
Part of the London School of Economics was cleared by the emergency services and the university was urging students to avoid the area, The Independent reported.
Footage from the scene showed the air filled with dark smoke that appeared to be streaming from potholes and underground vents.
Onlookers described "crazy scenes" and "madness" as smoke rose so high in the air that it could be seen from the Shard skyscraper.
Several buildings have also suffered power cuts due to the blaze, forcing some companies to send staff home, and Holborn Tube station has been closed. Around 2,000 people were evacuated because of the smoke.
A spokesperson for the London Fire Brigade warned that the situation in Holborn will get worse until electricity companies switch off the power and firefighters can put out the flames.
Six fire engines and 35 firefighters and officers are currently at the scene on standby to tackle the blaze and police are advising drivers to avoid the area as road closures continue. Students from LSE were evacuated during the blaze. Photo:Yasmine Hafiz
Transport for London said Holborn Underground station would remain closed until the power supply was fixed and warned that closures on Kingsway and in the Strand Tunnel were causing queues back to Trafalgar Square.
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