At least six people were wounded, according to another Pakistani official.
A wrecked car could be seen on the road at the side of the hotel, though police said the bomber was on foot.
Chaudhry Iftikhar Ahmed, Islamabad's police chief, said: "He was on foot. The blast occurred when he tried to enter the hotel."
'Flesh scattered'
A Reuters journalist saw blood and flesh scattered over the tarmac close to a side entrance, where the hotel's night club and laundry services are located.
A motorist, who declined to give his name, described hearing and feeling the explosion as he drove by.
"As I was driving, I heard a huge blast at my back," he said. "The windscreen of my car shattered. When I turned round, I saw flesh scattered on the road."
Police cordoned off the area and sirens wailed through the district, where many government buildings are sited, and police used batons to drive back journalists, photographers and television crews at the site.
The US embassy barred staff from visiting the hotel after a small blast in the lobby in October, 2004.
Seven people were wounded in that blast, including a US diplomat. The Pakistani government said the explosion was caused by an electrical fault.