The hotel has been used for rebel news conferences, and the National Transitional Council, which is fighting to topple Libyan leader Muammar Gaddafi, has offices there.

Many journalists are also staying at the hotel which overlooks the sea in central Benghazi.

A witness at the scene saw two fire brigade vehicles, an ambulance and a tow truck dragging away a burned vehicle. Security had also been stepped up around the hotel.

Nasser El Haram, a police officer, said the rebel authorities believed the explosion might be linked to Gaddafi agents still operating in rebel-controlled eastern areas.

"It could be the remnants of Gaddafi's regime because the Tibesti hotel is the symbol of the revolution," he said.

Abdel Hafiz Ghoga, vice chairman of the National Transitional Council, said the explosion was believed to have been caused by a hand grenade thrown from a distance.

"Four cars exploded as a result of the hand grenade. The investigation is under way until we find out the type of bomb," he said.