The Taliban claimed responsibility for the attack in a densely crowded neighbourhood, which sent clouds of acrid smoke billowing into the sky and rattled windows several kilometres away.
The brazen assault near the defence ministry marks the first major Taliban attack in the Afghan capital since the insurgents announced the start of this year's fighting season.
"One of the suicide attackers blew up an explosives-laden truck in a public parking lot next to a government building," Kabul police chief Abdul Rahman Rahimi told reporters.
Interior ministry spokesman Sediq Sediqqi said 30 people, including women and children, were killed in the attack and warned that the toll could rise further.
He added that more than 320 were wounded, with many of them battling for their lives in hospital.
The pitched firefight appeared to die down several hours after the powerful explosion, but some security officials expressed concern that other bombers may still be on the loose.
"I saw wounded people lying on the road and screaming helplessly," said Sadiqullah, who runs a tea stall near the building which was attacked.
The interior ministry said hundreds of kilograms of explosives were used in the bombing, the deadliest so far this year in the Afghan capital.
The scene of the attack was littered with upturned cars, many of them mangled and charred.
Taliban spokesman Zabihullah Mujahid claimed their fighters had managed to enter the offices of the National Directorate of Security, the main spy agency.
Sediqqi conceded that one of the attackers managed to breach the compound, a government office responsible for providing security to government VIPs, but said he was gunned down after a firefight.
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