Though the bomb attack was on the very heart of power in the small Nordic state, Prime Minister Jens Stoltenberg was safe. There was no claim of responsibility.
"This is very serious," Stoltenberg told Norwegian TV2 television in a phone call. He added it was too early to say if the blast was a terrorist attack. He said that police had advised him not to say where he was speaking from.
"Even though we have prepared for this type of situation, it is fairly dramatic when it happens," he added.
As he spoke, reports in local media came through of a shooting incident at Utoeya, an island south of Oslo where Stoltenberg's Labour party youth section's yearly gathering was taking place.
Daily newspaper VG said on its website a man dressed as a policeman was shooting wildly and had hit many people.
It was not clear whether or how the incidents were linked. NATO member Norway has been the target of threats, if not bombs, before, notably over its involvement in conflicts in Afghanistan and Libya.
The attack came just over a year after three men were arrested on suspicion of having links to al Qaeda and planning to attack targets in Norway.
"It exploded -- it must have been a bomb. People ran in panic...I counted at least 10 injured people," said bystander Kjersti Vedun , who was leaving the area of the blast in Oslo.
Violence or the threat of it has already come to the other Nordic states: a botched bomb attack took place in the Swedish capital Stockholm last December and the bomber was killed.
Denmark has received repeated threats after a newspaper published cartoons of the Prophet Mohammad in late 2005, angering Muslims worldwide.
The Oslo blast tore at the facade of the 17-storey central government building, blowing out most of the windows and scattering shards of metal and other debris for hundreds of metres (yards).
The building of a publisher which recently put out a translation of a Danish book on the Mohammad cartoon controversy was also affected, but was apparently not the target.
NRK state radio said at least two people were killed while news agency NTB quoted a police chief as confirming it was a bomb.
A Reuters reporter at the scene said the blast scattered debris across the streets and shook the entire city centre around 3:30 p.m. (1330 GMT). He saw eight people injured, one covered in a sheet and apparently dead.
The Reuters correspondent said the streets had been fairly quiet in mid-afternoon on a Friday in high summer, when many Oslo residents take vacation or leave for weekend breaks.
The tangled wreckage of a car was outside one building. This, as well as the damage to the buildings, appeared to witnesses to be consistent with a car bomb.
"This is a terror attack. It is the most violent event to strike Norway since World War Two," said Geir Bekkevold , an opposition parliamentarian for the Christian Peoples Party.
"So far I can confirm that we have received seven people at Oslo University Hospital ," a press officer at the clinic said.
"I don't know how seriously wounded they are." The district attacked is the very heart of power in Norway, with several other key adminstration buildings nearby.
Nearby ministries were also hit by the blast, including the oil ministry, which was on fire. Nevertheless, security is not tight given the lack of violence in the past.
CARTOONS The failed December attack in Stockholm was by a Muslim man who grew up in Sweden but said he had been angered by Sweden's involvement in the NATO-led force in Afghanistan and the Prophet Mohammad cartoons.
That attack was followed weeks later by the arrest in Denmark of five men for allegedly planning to attack the newspaper which first ran the Mohammad cartoons.
In July 2010, Norwegian police arrested three men for an alleged plot to organise at least one attack on Norwegian targets and said they were linked to individuals investigated in the United States and Britain.
John Drake , senior risk consultant at London-based consultancy AKE, said: "It may not be too dissimilar to the terrorist attack in Stockholm in December which saw a car bomb and secondary explosion shortly after in the downtown area.
"That attack was later claimed as a reprisal for Sweden's contribution to the efforts in Afghanistan."
NATO member Norway has sometimes in the past been threatened by leaders of al Qaeda for its involvement in Afghanistan.
It has also taken part in the NATO bombing of Libya, whose leader Muammar Gaddafi has threatened to strike back in Europe.
Political violence is virtually unknown in a country known for awarding the Nobel Peace Prize and mediating in conflicts, including in the Middle East and Sri Lanka.
David Lea, Western Europe analyst at Control Risks, said: "There certainly aren't any domestic Norwegian terrorist groups although there have been some al Qaeda-linked arrests from time to time. They are in Afghanistan and were involved in Libya, but it's far too soon to draw any conclusions."