The youth was detained on suspicion of handling explosives, but investigators do not know if he planned to carry out an attack with the homemade device, Signe Aaling, chief prosecutor for Norway's PST security service, said.
"PST is now working on finding his intentions and find out whether others are involved," Aaling said.
The youth was not identified, but security service head Benedicte Bjornland said intelligence agencies were aware of him. He is an asylum-seeker from Russia who arrived in Norway with his family in 2010, Bjornland said.
"It is likely that that attacks in France, German, Great Britain, Russia and Sweden can create a copycat effect in Norway with people with Islamic sympathies," Bjornland said, listing of the locations of extremist attacks that have devastated Europe in the last year.
The discovery of the explosive last night, found on the street just outside the Groenland subway station, prompted police to evacuate late bars and restaurants in the Norwegian capital.
The Oslo explosive was found less than a mile from the government buildings that were damaged in a deadly bomb attack carried out by right-wing extremist Anders Breivik in 2011. That bomb and a subsequent gun massacre at a Norwegian island killed a total of 77 people.
Norway intelligence agency raised the terror threat in the country today to "likely" for "a two-month period.
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