Map shows the location of the blast site Private NTV television said the explosion was close to a park that is home to a landmark obelisk. The state-run Anadolu Agency says several police and medics were sent to the area.
Police sealed the area, barring people from approaching in case of a second explosion.
“We're taking precautions against a second explosion,” a police officer said, ushering people out of the square.
The Sultanahmet neighborhood is Istanbul's main sight-seeing area and includes the Topkapi Palace and Blue Mosque.
'The explosion was very loud'
“The explosion was very loud. We shook a lot. We ran out and saw body parts,” one woman who works at a nearby antiques store told a Reuters correspondent, declining to give her name.
The explosion at around 10:20 am close to Dikilitaş was heard by nearby districts, according to witnesses.
Witnesses reported hearing a loud blast, and video footage on the CNN Türk station showed police and ambulances at the scene, according to the Zaman newspaper.
Erdem Koroglu, who was working at a nearby office at the time of the explosion, told NTV television he saw several people lying on the ground following the blast.
“It was difficult to say who was alive or dead,” Koroglu said. “Buildings rattled from the force of the explosion.”
The victims were shifted to nearby hospitals, mainly Haseki Training and Research Hospital.
Prime Minister Nawaz Sharif has expressed grief and sorrow over the blast, according to a statement issued by the Prime Minister's Office.
Turkey suffered two major bombing attacks last year.
More than 30 people were killed in an Islamic State suicide attack in the town of Suruc, near Turkey's border with Syria, in July.
Two suicide bombs in October outside Ankara's main train station as people gathered for a peace rally killed more than 100 people. It was Turkey's deadliest attack. The prosecutor's office said the attack was carried out by a local Islamic State cell.
Germany warns nationals to avoid Istanbul tourist sites: ministry
Germany on Tuesday warned its citizens to avoid crowds and tourist sites in Istanbul after 10 people were killed and 15 wounded in a suspected terrorist attack in Turkey's largest city.
“Travellers in Istanbul are strongly urged to avoid for now large groups of people in public places as well as tourist attractions and to stay abreast of the situation via these official travel advisories and the media,” the foreign ministry said.