New York Governor David Paterson described the bomb as an "act of terrorism," and said the "full attention of city, state and federal law enforcement" would be used to bring those responsible for the bomb to justice.
Armed police were called at 6.30 pm local time (2230 GMT)after a t-shirt vendor noticed an unoccupied car on Times Square and alerted a mounted New York police officer who smelled gunpower and saw smoke emerging from the back of the dark green Nissan Pathfinder.
New York Police Commissioner Raymond Kelly said the car, which was left on 45th Street, just off 7th Avenue, contained three propane tanks, consumer-grade fireworks, two filled 5-gallon (19-litre) gasoline containers, and two clocks with batteries, electrical wire and other components. He said a black metal box resembling a gun locker was also recovered.
The bomb threatened a "very deadly event," said New York Mayor Michael Bloomberg, who rushed back to New York from a White House Correpsondents' dinner in Washington. However he described the wiring connected to the device as "amateurish."
"We are very lucky... (to) avoid what could have been a very deadly event," Mr Bloomberg said at a hastily convened press conference. "The bomb squad confirmed that the suspicious vehicle indeed did contain an explosive device," he said.
"We have no idea who did this and why," he added.
Mr Kelly said the car's licence plate did not match the vehicle. The licence plate's owner had been traced, and told police he had sent the plate to a junkyard, he said.
A man was reported fleeing the area shortly after smoke was detected pouring from the car, but police later said there was no evidence that anyone had fled the car moments before the smoke was seen.
Time Square remained in lockdown on the busiest night of the week and into Sunday morning as anti-terror units searched the streets for other devices, and clues.
Tight security extended even to Google Earth, which blurred out Times Square on its maps of Manhatten.
A New York City firefighter who said he had arrived early on the scene said he saw "a flash" from the back of the SUV. The firefighter said a "mini-explosion" occurred around 6:30 p.m.
"The SUV was smoking. There was a flash and we put two and two together" and an evacuation was ordered, he said.
Reporters on the scene said they heard an explosion from the area of the SUV around 9:15 p.m. An NYPD community affairs officer said that and another small explosion heard by bystanders were the sound of water cannons aimed at the vehicle in an attempt to break through the glass.
Police allowed some people to enter theatres to view Broadway shows in the vicinity but later blocked other theatergoers from entering. Some hotel guests were allowed back to their rooms.
At least some of the shows were allowed to go on.
The square itself was mostly evacuated by 8 p.m., according to reporters on the scene. Police had evacuated an area stretching from about 42nd Street up to 47th Street and including Seventh Avenue and Broadway.
New York police defuse car bomb in Times Square - Times Online
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