It was the latest in a string of attacks in Kabul blamed on the Taliban and came as President Hamid Karzai convened a flagship conference on corruption in another part of the city.
The attacker blew himself up outside the gate of the Heetal hotel in the Wazir Akbar Khan district, near a guest house and also the home of Afghanistan´s former first vice president, Ahmad Zia Massoud.
The attack turned the street into scenes of mayhem, where a woman staggered out with blood smeared across her face and a guard lay dead, his face burnt beyond recognition, AFP reporters said.
"Eight people have been killed. Four are women. Four others are male and 40 other people have been wounded. It was a suicide bombing," interior ministry spokesman Zamarai Bashary told AFP.
Officials said the target of the attack was not immediately clear. On October 28, the Taliban claimed responsibility for a gun and suicide attack on another guest house in the same neighbourhood used by the United Nations, killing five UN staff.
Karzai told the anti-corruption conference, attended by lawmakers, government officials and ambassadors, that two bodygards of his former vice president were killed in the explosion.
The upmarket district of Wazir Akbar Khan is home to many foreign embassies and aid groups, as well as Afghan government officials.
"One of our guards was killed. The explosion happened down the road, close to our hotel. Not in our hotel," Heetal finance manager Bejan Salehi,said.
Men, women and children were among the wounded, defence ministry spokesman General Mohammad Zahir Azimi told AFP.
Siddiq Omar, 27, who works for an Internet company with a guest house in the street said five employees of the firm were wounded.
"I took the guard to hospital, he is very seriously hurt," he told AFP.
Nanghirlay, 25, was travelling in a taxi more than two blocks away when the bomber struck.
"All the doors of the taxi were blown open by the force of the blast and the car turned full circle because the force of the blast was so big," he said.
The blast occurred shortly before 10:00 am (0630 GMT) as lawmakers, government officials and foreign ambassadors gathered for the conference on efforts to crack down on endemic corruption in Afghanistan.
Karzai, under pressure to form a transparent government after his August re-election was tainted by fraud, is trying to stitch together a credible cabinet accepted at home and abroad in a bid to end months of political paralysis.
Washington has warned Karzai to fight corruption or see his cabinet bypassed in favour of lower level officials in an effort to provide services as part of a new US war plan deploying 30,000 extra American troops to fight the Taliban.
Tuesday´s conference will discuss the creation of a special anti-corruption commission, courts and law enforcement bodies.
Kabul has been rocked by a rising number of suicide and rocket attacks with the Taliban-led insurgency at its deadliest in the eight years since US-led troops ousted the Islamist militia´s regime.
On Monday, the top US military officer held talks in Kabul on a US surge of 30,000 troops scheduled to start arriving this week, warning that violence was likely to get worse before it gets better.
"I told our troops heading here to steel themselves for more combat and more casualties," Admiral Mike Mullen told reporters.
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