A security source said the incident took place at around 8am local time in the vicinity of the 4th police district of the city, close to Lab Jar area.
The source further added that two children were killed and another one was wounded after explosives planted in a trash bin went off.
Hashmat Stanikzai, a spokesman for the Kabul Security Commandment, confirmed the incident and said the explosion was likely triggered by a mortar round hidden inside the trash bin.
No individual or group has so far claimed responsibility behind the incident.
This comes as the anti-government armed militants have been attempting to increase their attacks in the key cities of the country, including Kabul during the recent months.
A senior army officer lost his life in an attack by unknown gunmen in Kabul city earlier on Wednesday morning, the defense officials confirmed.
Earlier on Sunday, the police chief of the police district number 5 of Kabul city was also wounded in a magnetic bomb explosion.