A T-shirt vendor, who was a Vietnam veteran, alerted the police when he noticed smoke coming out of a car at the Times Square in New York.
A mounted police officer examined the vehicle and saw white smoke billowing inside. He also smelled gunpowder.
Police hurriedly evacuated thousands of tourists and theatre-goers, including women in evening gowns, from the area on Broadway's busiest night of the week.
Heavily armed police and FBI agents were deployed on the empty streets as bomb disposal experts used a robot to break the windows on the vehicle and remove explosive material.
The alarm was raised at 6.34 p.m. local time. Six minutes earlier, a security camera had recorded the Nissan heading west on 45th Street.
Police have also established that the car's plates, which were from Connecticut, were not the ones registered to it.
They have already spoken to the owner of the plates who said he had taken them to a junkyard. New York Mayor Bloomberg said police had no reports of anyone being seen running away from the vehicle after abandoning it.
Times Square is four miles north of the site where terrorists destroyed the World Trade Center on September 11, 2001.
