The development came hours after the US embassy warned there were "credible threats" to tourist areas and public squares.
Police cordoned off Taksim square, a popular tourist destination in the city centre, the witness said.
A member of the police bomb squad was seen going through what appeared to be a bag and later detonated it in a controlled explosion, causing a large boom to be heard, the witness said.
Security had already been tight in the area ahead of an Organization of Islamic Cooperation (OIC) Summit in Istanbul this coming week.
The United States warned its citizens on Saturday about "credible threats" to tourist areas in Turkey, particularly in Istanbul and the southwest coastal resort of Antalya.