The Number 26 Bus
The explosion on the Number 26 bus blew out the windows, but there were no reports of injuries.
Bus operator Stagecoach said: "The driver heard a bang he believed came from the upper desk of the bus.
"The windows were blown out. The bus is structurally intact and there are no reports of any injuries."
The No 26 bus was travelling from Waterloo to Hackney in the east of city.
The incident occured in the Shoreditch area.
Security sources have told Sky News that a high explosive was found on the bus, similar to that used in the July 7 attacks.
They said the strong smell of acetone would have sparked fears of a chemical attack.
And the smell indicated that the explosives had been made up incorrectly, with too much acetone and not enough peroxide.
Witnesses to the explosion said there had been a bang followed by the smell of smoke.
Paul Williamson, 19, a bank worker who was in a tattoo parlour 20 yards away from the bus, said: "The first I knew of it there were people running about and running around in the street.
"I saw a blonde lady in her 20s who had been on the bus. I think she was American or Australian.
"She was quite scared and shaken and I think she was in a state of shock. She said it was a minor explosion and there were no injuries but she smelled smoke on the bus.
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"I think she was just getting off the bus when it happened. It can't have been a very loud explosion because we didn't hear anything where we were.
"The police were very quick, they came in and just said for everyone to get out of the area because there was a possibility of an explosion.
"As I came out I saw the bus but it didn't look like there was any damage to the bus.
"I didn't see any glass in the street."
Eyewitness Mark Bond, who was on board the bus, said: "Everyone froze on the bus for a couple of minutes, then some lady from the top of the bus came down and said some explosion had gone off at the back of the bus.
"The doors were flung open and everyone rushed out.
"There was panic in the area. We did actually see a mother and her child running down the street because she wanted to take her kid away from it as far as she could."
Police sealed off a major junction between Hackney Road and Shoreditch High Street. The bus was parked 50 yards up Hackney Road opposite the junction with Columbia Road.
Four fire engines were parked near a cordon which was set up 200 yards from the bus and firefighters donned protective orange suits.
Shops in the immediate area were told to shut their doors but staff at some of them were allowed to remain inside.
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