Police then cordoned off the mostly residential area and evacuated homes nearby a suspect van. They are searching the area for other bombs.
The sound of the blast could be heard several kilometres away, TVE, a state-run television channel, reported.
Eta, whose symbol is a snake wrapped around an axe, has killed more than 820 people in its 40-year campaign of bombings and shootings to carve a Basque homeland out of northern Spain and southwestern France.
The most recent fatality attributed to the group was that of a 41-year-old police officer who was killed on Wednesday when a booby-trapped van exploded without warning outside a police barracks in the Basque village of Legutiano.
Four other police officers were injured in the attack.
Alfredo Perez Rubalcaba, the interior minister, said 29 people were inside the police barracks at the time, including five children, and that Eta had intended a massacre.
No one has claimed responsibility for the attack, but police and the government said it bore the hallmarks of Eta.
The group has launched attacks against police barracks in the past and has never phoned in warnings as it does when bombing targets used by civilians.
If the attack against the barracks is confirmed to be the work of Eta, it will be the sixth death caused by the group since it broke a ceasefire in December 2006 with the bombing of a car park at Madrid's international airport that killed two Ecuadorean men.
Eta announced a "permanent ceasefire" in March 2006, but formally called it off in June 2007, citing frustration with the lack of concessions on the part of the government in their tentative peace process.
The group, whose initials stand for Euskadi ta Askatasuna, or Basque Homeland and Freedom, in the Basque language, is considered a "terrorist" organisation by the European Union and the United States.