The blast happened close to Green Village, a residential compound in Police District 9 used by foreign staff of international groups including aid organizations.
Interior ministry spokesman Nasrat Rahimi said that around 400 foreign nationals were evacuated by police from the high-security site.
Five militants who were seeking to carry out armed attack on those in the compound were killed by special forces of Afghan police, he said.
A fuel station in the area caught fire following the blast.
Rahimi said that 16 people who were killed in the attack included civilians and staff based in the compound. All 119 who were injured were civilians, he said.
This is not the first time that the Green Village is targeted by militants.
The compound is located close to homes and shops and on Tuesday angry residents staged protest, demanding shifting of the compound.
The attack came as US Special Representative Reconciliation Zalmay Khalilzad is visiting Kabul to meet with Afghan leaders following ninth round of talks with the Taliban in Qatar capital Doha.
Khalilzad said that almost 5,000 US troops would be pulled out and five based closed in exchange for Taliban guarantees that Afghanistan would not be used as a base for militant attacks on US and its allies.