Seven people were hurt - none seriously - in the latest attack in the east of the city. Police said they had received a 999 call from someone saying it was left by the neo-nazi group Combat 18.

BBC's John Andrew: The bomb shattered windows and sent nails flying

The same group was one of four far-right organisations that claimed to have been behind the nail bomb in Brixton, south London, which has a large black community.

Police say they believe the latest attack was "racist" and they were linking the two explosions.

It is believed that a man found the device in a holdall and put it in his car with the intention of taking it to a police station when it exploded outside a cafe.

Deputy Assistant Commissioner Alan Fry: "It is another atrocious crime with all the impact of terrorism"

Eyewitnesses said it was a purple Ford Sierra car which blew up in the street just before 1800 BST. Police continued their investigations throughout Saturday night and were planning to reopen the streets and market on Sunday.

Deputy Assistant Commissioner Alan Fry, head of the anti-terrorist branch, expressed his "personal disgust" at the bombing and said he wanted to assure local people that his officers would be working to make the area safe.

He said: "I have to say the device has similarities to the one in Brixton. I am linking the crimes, I am looking at this as a racist offence."

BBC's Jon Silverman: Combat 18's claim seems unlikely

Despite the telephone call alleging to be from Combat 18 the BBC's Jon Silverman said the group was unlikley to be responsible for the blast because it is infiltrated and under constant surveillance.

He said it has emerged that one week before the Brixton explosion, threatening letters were sent from another racist group called the White Wolves. Our correspondent says this may be a cell of just a few people trying to stir up a race war in the city.

Driver injured

Police investigators believe the man who found the Brick lane device had put it in the boot of his car, and received only minor injuries when it went off.

Prime Minister Tony Blair in Washington: Those responsible will be brought to justice

Superintendent David Finnimore said: "We don't at the moment know where it was coming from - but we do believe it was being taken to a police station."

A spokesman for the Royal London Hospital at nearby Whitechapel, said they had treated six people - one woman and five men - for "relatively minor" injuries.

Eyewitness Jonathan Olley: The whole street's covered with broken glass - it's a mess

The explosion also came on the 20th anniversary of the death of Anti-Nazi League campaigner Blair Peach, who led a successful drive to close down the National Front office in the area.

Blair's outrage

Prime Minister Tony Blair received a report of the explosion in Washington.

He said: "These things are outrageous and we will not tolerate them and we will make every effort to find out those responsible and bring them to justice."

Bethnal Green and Bow MP Oona King: "There's no hysteria here. We're very calm"

Councillor Ghulam Mortuza said he heard the blast from his home 300 yards away.

He told BBC News Online: "I came out and saw people running away from Brick Lane."

Mr Mortuza said: "People are very angry. This is the heart of the Bangladeshi community and this must be the work of racists.

"Our community was not mentally prepared for this. But we have fought racism in the past and will do it again. We are not going away."

The BBC's Daniela Relph: "The similarities with the Brixton bomb are striking"

Brick Lane market attracts hundreds of shoppers to its street market.

Local councillor Syed Mizan, speaking from the scene, said: "Everybody is shocked.

'We want to live in peace'

"We have good community relations in this area. We are a multi-racial community here and we want to live in peace."

Mr Mizan said he knew one of the injured, who worked for a local charity.

Councillor Helal Abbas, who has a business in Brick Lane, told BBC News Online: "I'm not surprised by this, considering what happened at Brixton.

"But I would have thought the police were keeping an eye on ethnic minority communities."