Last month, a car bomber struck outside a Nato base in Kabul, injuring three foreign soldiers and three Afghan civilians.
Tuesday's blast is the first such attack since President Karzai was sworn in for a second term in office last month, when he pledged to tackle corruption and insecurity.
Meanwhile, Red Cross (ICRC) officials have paid their first visit to detainees held by the Taliban in Afghanistan.
The humanitarian organisation said its officials twice visited three members of the Afghan security forces held in Badghis province in the north-west of the country.
"We welcome this breakthrough. We plan to conduct and repeat visits in other regions, and hope to visit people held by other armed opposition groups...," said Reto Stocker, ICRC chief in Kabul.
An eyewitness was quoted as saying that a black four-wheeled drive vehicle blew up as it passed the Heetal Hotel in the upmarket area.
"It drove very slow to the checkpoint of the hotel. And then it blew up," Humayun Azizi told the Associated Press news agency.
The blackened, smouldering carcass of the car bomb has been blown onto its roof, the remains of the attacker still inside, says the BBC's Ian Pannell at the scene.
Hundreds of police and investigators are at the site, he says.
The blast caused extensive damage to the surrounding area
It happened in one of the most heavily guarded areas of Kabul, and is just the latest attack in what's been the worst year for security in Kabul since the overthrow of the Taliban in 2001, our correspondent adds.
The home of Ahmad Zia Massoud was among the buildings damaged, although it is not clear whether Mr Massoud was the bomber's target.
Mr Massoud, a prominent opposition leader, is the brother of anti-Taliban commander Ahmad Shah Massoud, who was killed in a suicide bombing in 2001.
AP said the hotel suffered damage, but quoted an unnamed intelligence official as saying none of the hotel's guests were hurt.
Police and emergency vehicles have taken the wounded away to hospitals.
Four men and four women were killed in the blast.
The blast occurred as some 200 delegates gathered at the anti-corruption conference several miles away.
After the meeting began with a moment's silence, President Karzai acknowledged corruption was widespread, but warned it would be difficult to eradicate.
I know that corruption in our government and society cannot be eliminated overnight
"Every one of our police, every one of our soldiers, every one of our mayors, every one of our judges, every one of our governors can go to someone's house knock on the door and drag a man out of that house and terrorise him.
"In my opinion, this is the main form of corruption," he said.
But he added: "I am a realist. I know that corruption in our government and society cannot be eliminated overnight. We cannot even eleminate it in years."
Mr Karzai is facing mounting Western pressure to curb corruption, widely viewed as helping drive support for the Taliban.
Meanwhile, the top US military officer held talks in Kabul on Monday ahead of a surge of 30,000 American troops to fight Taliban and other insurgents.
Adm Mike Mullen said violence in Afghanistan was likely to get worse before it gets better.
"I told our troops heading here to steel themselves for more combat and more casualties," he said.
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