A suspected suicide bomber blew up the car near the presidential palace.
The scene is one of utter destruction, with body parts scattered across a wide area, he says.
Security has improved in Mogadishu over the past year following the withdrawal of the al-Qaeda-linked al-Shabab group.
This is one of the most deadly attacks in Mogadishu since a new UN-backed Somali government was formed last year.
"We've counted at least eight dead so far. It was a car bomb attack," said police official Mohamed Duale.
A witness, Hassan Salad, said the dead included passengers in a minibus that was hit by the blast, AFP reports.
"This is a disaster, there is smoke and dead bodies thrown all around," he is quoted as saying.
No group has said it carried out the attack, but Mogadishu's Deputy Mayor Warsame Jodah blamed al-Shabab for the bombing.
Our reporter says the minibus has been completely destroyed, and ambulances are rushing the wounded to hospital.
Government troops have fired a few shots into the air to disperse the large crowd which gathered at the site of the blast, he adds.
Friends and relatives are searching for their loved ones, our reporter says.
The huge explosion damaged nearby buildings, including a restaurant, but not the heavily fortified presidential palace and the National Theatre, which is also close by, he adds.
Al-Shabab was forced out of Mogadishu in August 2011 following an offensive by African Union (AU) troops.
However, bombings and assassinations have continued in the city.
Pro-government forces have also seized control of most of the urban centres in southern and central Somalia from al-Shabab. The Islamist group still dominates many rural areas.
A new government backed by the UN came to power last September, tasked with ending more than 20 years of conflict in the country.
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