Monday's blast, if confirmed as an attack, would be the first significant security incident since April 22, when 26 mainly Hindu civilians were killed at the tourist site of Pahalgam in Indian-administered Kashmir, triggering clashes with Pakistan.

"The country's leading investigative agencies are conducting a swift and thorough inquiry into the incident -- findings of the investigation will soon be made public," Defence Minister Rajnath Singh told a conference in New Delhi.

"I want to firmly assure the nation that those responsible for this tragedy will be brought to justice, and will not be spared under any circumstances."

Crime scene investigators scoured through the wreckage of a car early on Tuesday, hours after the intense explosion.

Senior Delhi police officer Raja Banthia said they were investigating the blast, near the landmark Red Fort in the crowded Old Delhi quarter of the city, under anti-terrorism laws.

However, they have not given details on the cause of the explosion, which also wounded at least 19 people when intense flames ripped through other vehicles near the 17th century structure.

New Delhi's deputy chief fire officer AK Malik told AFP shortly after the explosion that eight people had been killed.

The Press Trust of India news agency reported on Tuesday that the death toll had risen to 12, although that figure has not been confirmed.

Home Minister Amit Shah told reporters late on Monday that security forces were "keeping all angles open", adding that it was "very difficult to say what caused the incident" until forensic samples had been analysed.

At dawn on Tuesday, AFP reporters at the site said police had erected white sheets around the charred remains of vehicles overnight.

Security was increased across New Delhi as both forensic and anti-terrorism agencies searched for evidence.

Prime Minister Narendra Modi offered his "condolences to those who have lost their loved ones in the blast in Delhi" before leaving for a state visit to neighbouring Bhutan.

"I understand the pain of the families. The whole nation stands with them," he said.

The Red Fort is one of India's most well-known landmarks. Prime ministers address the nation from its ramparts on Independence Day, and its striking features appear on India's largest banknote.

- 'People were burning' -

Eyewitnesses described to AFP how the car exploded in traffic and how people caught up in the surge of flames were set on fire.

"I saw the car explode while it was moving," said Dharmindra Dhaga, 27.

"People were on fire and we tried to save them... Cars and people were burning -- people inside the cars were burning," he said.

"I was telling the public to save them, rescue them, and get them out. The public was busy making videos and taking photos."

The emergency ward at Delhi's LNJP hospital was chaotic after the explosion as wounded people streamed in and doctors rushed to treat them.

A woman broke down outside the ward where her husband was being treated.

"I can't bear to see him like that," she said as her brother tried to console her.

New Delhi accused Pakistan of backing the gunmen after the April attack in Pahalgam, a claim denied by Islamabad.

That attack sparked deadly clashes between the nuclear-armed arch rivals in May, when more than 70 people were killed in missile, drone and artillery exchanges before a ceasefire was struck.

The last significant attack in the Indian capital was in September 2011, when a bomb hidden in a briefcase ripped through a crowd outside New Delhi's High Court, killing at least 14 people.