At least 11 American contractors working for the U.S. embassy are among the injured, according to a U.S. official. The attack highlights the continuing security threat posed by insurgent groups in Afghanistan.
There has been no claim of responsibility for the blast in the city district known as Wazir Akbar Khan that is known as one of the securest parts of the capital.
In recent years the Taliban has become resurgent throughout Afghanistan as Afghan forces took the lead for security in the country and American and coalition forces stepped back into an advisory role.
But the security challenges in Afghanistan have grown beyond fighting the Taliban and the Haqqani Network. In late 2015, warring groups formerly aligned with the Pakistani Taliban switched their allegiance to ISIS and re-branded themselves as ISIS-Khorasan and quickly became the primary security challenge in eastern Afghanistan.
With increased U.S. military support, Afghan forces have turned a corner against ISIS, dealing the group significant battlefield losses over the past year.
Meanwhile, the Taliban has expanded its operations challenging Afghan forces on several fronts. Over the past year they have maintained pressure in northern Afghanistan seeking to retake the city Kunduz that they briefly seized in late 2015.
Earlier this year, U.S. General John Nicholson described the current military situation in Afghanistan against the Taliban as a "stalemate".
While the results on the battlefield have been mixed, high profile terror attacks have continued to hit the relatively stable capital city of Kabul.
American military officials believe the insurgent groups carry out attacks in Kabul to demonstrate the weakness of the U.S-backed Afghan government and its security forces.
General Nicholson has said he needs additional U.S. and coalition forces to enhance the 8,400 American and 5,000 coalition forces advising and training Afghan security forces.
ABC News' Aleem Agha contributed to this report.