The attack is believed to been carried out by Taliban militants whose leadership has suffered a series of major setbacks in recent weeks, including the capture in Karachi of its overall military commander Mullah Abdul Ghani Baradar, the movement's deputy leader.
"This place was used to interrogate important suspects, presently there was no such suspect, but more than 40 staff were manning the place," Lahore Police Chief Pervez Rathore said.
The bomb exploded at around 08:15am local time (03:15am UK time) outside the Federal Investigation Agency offices in the city's Model Town district. It caused serious damage to surrounding buildings, including a madrassa religious school, and provoked panic in the streets.
Police said here are some injured still buried beneath the rubble of the intelligence agency which is located in a largely residential area.
A silver Toyota Corolla was seen blown apart outside the offices next to a crater measuring around 10ft wide.
"With the huge bang, blocks and pieces of the roof fell upon us and six of us were wounded. It was total chaos outside and people were running and crying for help," said Noorul Huda, a student at a nearby religious school.
This latest attack is the first in the city since 48 were killed in a double suicide bomb attack on a local market in December. It follows an ambitious attack on three separate security offices in the city last October where Taliban commando teams killed 28.
A spokesman for the police said that attack reflected desperation among Taliban leaders as Pakistan's intelligence agencies continue to arrest its senior commanders.
"It shows the effectiveness of the operations in Waziristan that there have been no attacks since that time. The terrorists' base has been hit and their networks have been destroyed," Imran Ahmar of Lahore's Security Police said.
The bomber did not manage to penetrate the FIA compound and the car bomb detonated just outside. The area surrounding the compound had been heavily guarded by intelligence agencies and the police.
Neighbouring buildings and cars were damaged in the explosion, windows were shattered and whole walls collapsed. Local electricity supplies were severed by the blast.
Police called for blood donors to go to nearby Jinnah Hospital.