There was no immediate confirmation of casualties from the attack on Le Jardin, an Afghan-owned eatery, which caused a piercingly loud explosion and left a building engulfed in flames.
The attack comes a day after Afghanistan announced four-way talks in Pakistan on January 11, aimed at jump-starting peace negotiations with the resurgent Taliban.
“We can confirm a suicide car bomb attack on Le Jardin,” Fraidoon Obaidi, the head of Kabul's Criminal Investigation Department, told AFP.
“We are busy extinguishing the fire at the scene,” he added.
The information was corroborated by a Western official in Kabul, who did not have details of casualties.
Security forces cordoned off the area and firefighters and ambulances with wailing sirens were seen rushing to the restaurant.
The attack comes just days after Pakistan's powerful army chief General Raheel Sharif visited Kabul to try to prepare the ground for fresh peace talks with the resurgent Taliban.
Both sides agreed to hold a first round of dialogue between Afghanistan, Pakistan, US and China on January 11 to lay out a comprehensive roadmap for peace, officials in Kabul said.
Pakistan — the Taliban's historic backers — hosted a milestone first round of talks in July but the negotiations stalled when the insurgents belatedly confirmed the death of longtime leader Mullah Omar.
Afghanistan sees the support of Pakistan as vital to bring the Taliban to the negotiating table.
But despite the growing bonhomie with Islamabad, analysts caution that any substantive talks are still a long way off.
Afghan forces are currently battling to push back Taliban insurgents who seized large swathes of the key opium-rich district of Sangin in the southern province of Helmand.
Observers say the intensifying insurgency highlights a push by the Taliban to make more military gains to try to achieve greater concessions during talks.
The Taliban attacked a restaurant popular with expats, the Taverna du Liban, in January 2014, killing 21 people, including 13 foreigners.
Desperate customers tried to hide under tables as one attacker detonated his suicide vest at the fortified entrance to the eatery and two other militants stormed inside and opened fire.