The blast occurred as a military vehicle was passing on a road in the city centre, some 100 metres (yards) from a military base and billets, a police official said.

Television footage showed fire fighters trying to extinguish a large fire that appeared to have destroyed at least two cars along with the military vehicle.

Wounded people were seen being placed into several ambulances standing by.

Police told AFP that "about 20 people" were hospitalised after the explosion, which also blew out the windows of nearby buildings.

Police threw a security cordon around the scene and kept reporters away, saying this was a precaution against a possible second explosion.

Diyarbakir has been at the heart of two decades of bloody separatist conflict in southeast Turkey by the outlawed Kurdistan Workers' Party (PKK) that has cost more than 37,000 lives.

PKK rebels have in the past claimed responsibility for several bomb attacks in Diyarbakir and other major cities.

The blast came as the Turkish army has stepped up action against PKK rebels who Ankara says are using neighbouring northern Iraq as a springboard for attacks on Turkish targets.

The general staff has confirmed three air strikes on PKK positions in northern Iraq since December 16, in addition to a cross-border land operation to stop a group of rebels from infiltrating Turkey.

Officials in northern Iraq have reported two other air raids.

At least 150 militants have been killed and more than 200 PKK positions destroyed in the raids so far, according to the Turkish military.

The PKK, listed as a terrorist group by Ankara and much of the international community, has waged a bloody campaign for Kurdish self-rule in southeast Turkey since 1984.