The blast occurred late on Sunday night in the Financial Harbour district of the city.
An opposition group calling itself the February 14 movement has  claimed it was behind the blast.
The Ministry of Interior acknowledged the blast and said it had caused no casualties.
In a statement the ministry said: "A terrorist group used a gas cylinder to burn a car in Manama at night on Sunday causing an explosion, causing no damage."
The explosion occurred only a few hours after a press conference given by Samira Rajab, Bahrain's Information Affairs minister.
Ms Rajab had described the situation in Bahrain as "very reassuring".  She blamed foreign media for "blowing the security situation out of proportion".
"There has been no major escalation of violence on the ground recently as the F1 Bahrain Grand Prix is drawing nearer," the minister said.
But there have been daily protests and one hundred have reportedly been arrested in connection with the race.
The claim by February 14 that it carried out the blast cannot be independently verified but if confirmed the attack would mark the first time the group has said it was behind such an attack.
An observer who asked not to be identified expressed surprise that the explosion had occurred in the Financial Harbour.
"Security there is tight. If they can get away with something like that I am worried something big will happen at F1."
On  social media sites, the 14 February movement has said it will carry out more "actions" in a bid to force the cancellation of the race.
However when asked about the blast F1 boss Bernie Ecclestone dismissed concerns,  telling reporters in Shanghai he saw "no reason"  why the Bahrain race would not be a success.
For the government and its supporters, holding the F1 race demonstrates that after two years of unrest the kingdom is stable and back on track. But many in the opposition oppose the race arguing that the government has failed to deliver on promises of reform.
On 14 February 2011, peaceful protesters took over Pearl Roundabout, an iconic landmark in the capital, Manama. Three days later security forces cleared the site using tear gas, batons and birdshot.
As violence escalated 35 people, including five police officers, were killed, hundreds more were hurt and thousands jailed in February and March 2011.
Since then, opposition and human rights activists say more than 50 people have died, a figure which the government disputes.
A car explosion in the heart of the Bahraini capital Manama has heightened security concerns ahead of Sunday's Formula 1 Grand Prix.