The Metro Nashville Office of Emergency Management told local broadcaster News 2 that a parked RV exploded and damaged several surrounding buildings.
Police said there were no reported injuries, and that they believe the explosion was intentional.
The FBI and the Bureau of Alcohol Tobacco and Firearms are investigating.
Nashville police announced that downtown streets would be closed as they investigate the scene further. A spokeswoman for the Metro Nashville Police Department said the site of the explosion was an “active scene.”
A man who lives nearby, Buck McCoy, posted a video to Facebook showing the aftermath of the explosion. His windows are completely blown out and water is pouring down from the ceiling of his home.
Alarms whir in the background, barely masking the cries of others whose Christmas mornings was ruined by the blast.
Black smoke billows into the air outside his home, rising from a vehicle fire on the ground outside.
“All my windows, every single one of them got blown into the next room. If I had been standing there it would have been horrible,” he told the Associated Press. “It felt like a bomb. It was that big,” he told The Associated Press.
John Cooper, the city’s mayor, told CNN that he was aware of the explosion and was on his way to the scene.
“I do know emergency services are calling in our help, all our specialties, to investigate the cause of the explosion and I’m sure more information will be posted soon,” Mr Cooper said.
The explosion occurred in the heart of the city’s historic old town, which is home to its hospitality and tourist district.