A seven-storey building in Madrid has been destroyed by a suspected explosion, with at least one person believed to be trapped in the rubble.

Several floors of the building in the capital's Toledo Street have been affected by the blast, that ripped through the building at around 2:30 p.m. local time.

A reporter for TVE public broadcaster said several had been injured, without giving details. A witness told Telemadrid broadcaster that there was at least one person trapped inside.

The cause has not yet been revealed although initial reports said it could be a gas explosion, with at least two people currently unaccounted for.

The building is understood to be next to a school, but emergency services could not immediately confirm if there had been any injuries.

A police spokeswoman said the area was being evacuated but could not confirm the source of the explosion.

La Sexta TV quoted government sources saying it may have been a gas leak. Officials could not immediately confirm.

Madrid's emergency services said rescue teams, firefighters and police are working in a central area of the Spanish capital following the explosion that witnesses described as 'extremely loud.'

Videos and images shared on social media showed a tower of smoke coming out from a building and rubble scattered in a central street of Madrid. Spanish public broadcaster TVE said the explosion took place in a building near a nursing home.

Leire Reparaz, who lives near the Puerto de Toledo, a local landmark, told The Associated Press that she heard a loud explosion.

'We didn't know where the sound came from. We all thought it was from the school. We went up the stairs to the top of our building and we could see the structure of the building and lots of grey smoke,' the 24-year-old Madrid resident said.

It is believed that the building housed offices and meeting rooms.