According to officials, the explosion was heard just before 7 pm local time.
After hearing the loud boom, videos posted on social media showed people running through the streets.
Local media reported that firefighters found elevated carbon monoxide levels at a building on W 43rd Street.
A statement issued by Con Edison, a gas and electricity provider in New York City, said it is believed "cable failure" is to blame for the explosion and fire.
"One manhole exploded in the Times Square area this evening due to cable failure, and a second manhole was smoking," the statement said.
"At this time, there have been no customer outages, and no reports of injuries or property damage. Our crews remain on location."
No injuries have been reported after the incident.