Militants targeted Green Village, located near a busy road in the east of the city and where some foreign workers are based, said interior ministry spokesman Najib Danish. At least 10 children were among the wounded, he added.
Until recently some United Nations' staff had lived and worked at the highly secure compound, but Danish said the area was now largely empty and "only a number of guards" were left. "Residential houses nearby have sustained heavy damage," Danish said.
"Special police forces' units have been deployed to the site to check if there are more attackers."
The explosion happened in the early evening when traffic is normally heavy.
The last assault on a foreign compound was in late November when a Taliban-claimed vehicle bomb exploded outside the compound of British security firm G4S, killing at least 10 people. Five G4S employees were among the dead.
That was followed by a suicide and gun attack on a government compound in Kabul on December 24 that killed at least 43 people, making it one of the deadliest assaults on the city last year. The latest bombing comes as US peace envoy Zalmay Khalilzad visits the region for meetings aimed at bringing an end to the 17-year war in Afghanistan, which by some estimates was the world's deadliest conflict zone in 2018.
Khalilzad, who met Taliban representatives last month in Abu Dhabi, is travelling to Afghanistan as well as China, India and Pakistan on the trip lasting through January 21. The leaking of US President Donald Trump's plan to slash troop numbers in Afghanistan, however, has threatened to derail those efforts.
The recent flurry of activity to get the Taliban to the negotiating table has caused disquiet in Afghanistan, with the government feeling sidelined from the discussions. The Taliban has repeatedly refused to talk to Kabul, which it sees as a US puppet and ineffective
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