At least two people have been killed in an explosion that caused the partial collapse of a building in central Madrid and started a fire inside.

Mayor Jose Luis Martinez-Almeida said initial information pointed to a gas leak that likely caused the blast on Wednesday.

A nearby nursing home was evacuated although no injuries have been reported among the residents.

A police spokeswoman said the area was being evacuated after the explosion on Wednesday.

Know the news with the 7NEWS app: Download today

The explosion happened in Toledo street, in the city centre.