Reports speak of at least four people injured. The city is at the heart of the conflict between the Turkish government and Kurdish separatists.
Interior Minister Suleyman Soylu said the blast happened at a vehicle repair unit, and appeared to be an accident.
He said "it seems there is no outside interference, and the explosion came from the vehicle under repair".
Mr Soylu said one person was trapped under rubble, another was seriously injured, and others had minor injuries.
The blast brought a roof down, left a huge crater and a pall of smoke drifted over part of the city. The cause remains unclear.
The banned Kurdistan Workers' Party (PKK) is active in the area.
Turkey is five days away from a key referendum on granting President Recep Tayyip Erdogan sweeping new powers.
South-eastern Turkey has seen frequent clashes between the PKK and Turkish security forces since a fragile truce collapsed in the summer of 2015.
There have also been bloody attacks in Turkey blamed on so-called Islamic State (IS). The jihadists are hostile to both the Turkish state and the Kurdish rebels, who are battling for territory and influence inside Syria.
A large explosion has struck a police headquarters in the mainly Kurdish city of Diyarbakir in south-eastern Turkey.