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Police said a number of people were injured in the city centre explosion.
No-one has said they were behind the attack, which witnesses said could be heard across the capital.
Television footage from the scene showed rubble and glass from shattered windows in the streets - smoke was rising from some buildings. The wreckage of at least one car was on one street.
All roads into the city centre have been closed, said national broadcaster NRK, and security officials evacuated people from the area, fearing another blast.
"Police can confirm there were deaths and injuries following the explosion in the government quarter this afternoon," police said in a statement.
Oistein Mjarum, head of communications for the Norwegian Red Cross, said his offices were close to the site of the explosion.
"There was a massive explosion which could be heard over the capital Oslo," he told the BBC.
Government spokeswoman Camilla Ryste told the Associated Press Mr Stoltenberg was safe. Initial reports said he was not hurt.
A spokesman for Oslo University hospital said seven people had been taken there for treatment.
"I don't know how seriously wounded they are," he told Reuters.
'Complete chaos' Mr Mjarum said there were fires burning in the prime minister's 17-storey building.
"This is a very busy area on Friday afternoon and there was a lot of people in the streets, and many people working in these buildings that are now burning," he said.
Eyewitness Ole Tommy Pedersen said he was standing at a bus stop about 100m away from the blast.
"I saw three or four injured people being carried out of the building a few minutes later," Mr Pedersen told AP.
He said there was a cloud of smoke billowing from the lower floors.
An NRK journalist, Ingunn Andersen, said the headquarters of tabloid newspaper VG had also been damaged.
"I see that some windows of the VG building and the government headquarters have been broken. Some people covered with blood are lying in the street," AP quoted her as saying.
"It's complete chaos here. The windows are blown out in all the buildings close by."
Mr Mjarum said people were in shock in Oslo and across Norway.
"We have never had a terrorist attack like this in Norway - if that's what it is - but of course this has been a great fear for all Norwegians when they have seen what has been happening around the world."
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