The Real IRA has claimed responsibility for the car bomb that exploded close to the British Army base at Holywood, Co Down, this morning.
In a phone call to the BBC, a spokesperson for the dissident republican group said it had carried out the attack.
The bomb exploded near the headquarters of MI5 in Northern Ireland shortly after policing and justice powers were transferred from London to Belfast.
PSNI sources said the bomb was taken to the barracks in a taxi, which was hijacked in north Belfast after the driver's family was held hostage.
A PSNI spokeswoman confirmed: 'A device has exploded in a vehicle at the rear of Palace Barracks in Holywood.'
'The explosion occurred at approximately 12.24am this morning.'
PSNI chief Superintendent Nigel Grimshaw said those responsible had shown no regard for human life and were nothing more than criminals.
Homes around the Palace Barracks, which houses the MI5 building, were evacuated.
Policing Board member Basil McCrea of the Ulster Unionists said between 50 and 60 people living near the barracks were taken to the Redburn Community Centre in Holywood following the bomb warning.
Mr McCrea said: 'The warning was given and the attack alarms went off, but it is obviously a significant device.
'One person, an elderly man, was blown off his feet. I think he was just a member of the community who happened to be walking past. He has gone to hospital. I think it must have been a bit of a shock.'
The blast came as law and order policy was returned to Stormont at midnight, marking the end of 38 years of Whitehall control.