A bomb has exploded in a crowded market in India's capital New Delhi, killing two people and injuring 22 others.

The Indian government described it as an act of terror.

Witness Raj Singh Daswal said he saw two men on a motorcycle drop a black plastic bag that was picked up by a boy.

'He ran after the men telling them "uncle, uncle you dropped something",' Mr Daswal said.

'Immediately after, there was a huge explosion. The boy's head was blown off.'

Police said the second victim was a 60-year-old man who died in hospital.

The bomb left a crater on the road. Police cordoned off the blast site to keep away a crowd of hundreds of people.

Many of the injured are said to be in critical condition.

Police said they were evacuating people from all major markets in the city.