The blast took place in the South Ossetian capital Tskhinvali, next to a Russian army installation, reported Interfax news agency, citing South Ossetian authority sources.

The powerful blast damaged the Russian infantry building and blew out windows in surrounding structures up to a half a kilometer away, Interfax reported.

Officials in the rebel province said the incident occurred after a suspect automobile was confiscated from Georgian citizens by Russian soldiers. The four-wheel-drive vehicle turned out to be packed with explosives and blew up near the soldiers' military base.

Eduard Koikoty, South Ossetia's rebel leader, was quick to accuse Georgian special forces of organizing the attack.

"This was an attack planned by the Georgian Ministry of National Security," Kokoity told Russia's state-run ITAR-TASS news agency in Tskhinvali.

Georgia says its hands are clean

Georgian Interior Ministry spokesman Shota Utiashivili denied his country's involvement in what appeared to be a car bombing targeting Russian soldiers.

"I think this is a provocation with the aim of keeping Russian forces in Georgia," Utiashvili told news agency AFP in the Georgian capital Tbilisi.

Thousands of Russian troops are stationed inside South Ossetia, a second Georgian breakaway province, Abkhazia, as well as several “buffer zones” around those regions, after a brief war with Georgia in August.

After Georgian troops were overwhelmed by Russian forces, a peace accord was brokered by the European Union under which Russia pledged to pull its troops out of undisputed Georgian territory by Oct. 10, a promise Russian President Dmitry Medvedev reiterated Thursday the Kremlin still planned to live up to.

A 350-strong European Union observer mission began work in Georgia on Wednesday with the aim of monitoring the ceasefire and the withdrawal of Russian troops from the buffer zones around the breakaway provinces.