The cause of the explosion in the Sultanahmet district was being investigated, but state-run TRT television said it was likely caused by a suicide bomber, the Associated Press reported.
The explosion, which could be heard from several neighborhoods, was close to a park that is home to a landmark obelisk. Police sealed the area, barring people from approaching in case of a second explosion.
The Sultanahmet neighborhood is Istanbul's main sightseeing area and includes the Topkapi Palace and Blue Mosque.
Erdem Koroglu, who was working at a nearby office, said he saw several people on the ground following the blast.
"It was difficult to say who was alive or dead," Koroglu said. "Buildings rattled from the force of the explosion."
Turkey suffered two major bombing attacks last year, both blamed on the Islamic State in Iraq and the Levant (ISIL) group.
More than 30 people were killed in a suicide attack in the town of Suruc, near Turkey's border with Syria, in July.
Two suicide bombs exploded in October outside Ankara's main train station as people gathered for a peace rally, killing more than 100 in Turkey's deadliest-ever attack. The prosecutor's office said that attack was carried out by a local ISIL cell.