Japanese police say 42 people were injured in the explosion, with one of them in a serious condition.
The cause of the explosion in the Toyohira district is not yet known. Some reports suggested a gas blast.
Images on social media initially showed flames rising from the area with debris all around, and later firefighters tackling collapsed buildings.
Police sealed off the area amid fears of more explosions.
More than 20 fire engines were reportedly deployed.
The emergency services were first alerted to the explosion at about 20:30 on Sunday (11:30 GMT).
Japanese broadcaster NHK said the area affected had both residential and dining establishments and was about 3km south-east of the city centre.
The Japan Times quoted one eyewitness as saying the explosion sounded like thunder.
Another eyewitness told NHK that the blast had broken the windows of the restaurant he was working in, and that there were "many injured people".
Officials warned that the number of injured could rise.