The bomb targeted a service shuttle bus carrying officers from Istanbul's anti-riot police as it was passing through the central Beyazit district close to many of the city's top tourist sites, Istanbul governor Vasip Sahin said in a live statement on Turkish television.
Thirty six people were wounded, three of them seriously, he added.
Reports said the explosion took place close to the Vezneciler metro station, which is within walking distance of some of the city's main tourist sites including the famed Suleymaniye Mosque.
Pictures showed the bomb had turned the police vehicle into mangled wreckage and that nearby shops had their front windows smashed out by the force of the blast.
Cars parked in the vicinity were also damaged.
Television pictures showed bomb disposal experts examining the scene in case of a second unexploded bomb and reports said at least one controlled explosion was carried out.
Scheduled examinations at Istanbul University -- which lies close to the scene of the blast -- have been cancelled.
Reports said that shots were heard and pictures showed police in bullet proof vests brandishing their weapons.
There was no immediate indication of who had carried out the attack.
But since the start of the year, Turkey has been hit by a sequence of attacks that have rattled citizens and also caused tourism to plummet.
Two separate blasts in Ankara claimed by the Kurdistan Freedom Falcons (TAK) -- a radical splinter group of the better-known outlawed Kurdistan Workers' Party (PKK) -- earlier this year claimed dozens of lives.
Last month, at least eight people including soldiers were wounded by a remotely detonated car bomb aimed at a military vehicle in Istanbul that was claimed by the PKK.
At least three Israelis and an Iranian were killed in a March 19 bombing on Istanbul's main Istiklal shopping street which was also blamed on IS jihadists.
The attacks have also come as Turkey is battling PKK militants, who have themselves killed hundreds of members of the security forces in the southeast.
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