The car, a red Peugeot estate, exploded 19 minutes after the driver was challenged by a police officer shortly after he drew up alongside the Cenotaph, 10 yards away from the railings outside Downing Street. The driver had been told to continue up Whitehall by two men who got out of the car before the vehicle reached Downing Street.
At the time of the explosion, which happened at 9.09pm, the Prime Minister was in his Huntingdon constituency. No one was injured and, although the car was burnt out, minimal damage was caused.
It was the third time in less than two years that terrorists have breached Whitehall security to launch attacks at the heart of the Government.
A Scotland Yard spokesman said: 'The cab had been hired from the north London area - we are not prepared to disclose where at this stage. The driver was told to drive to central London - the passenger or passengers were not specific. It appears that the passenger or passengers then produced a firearm or firearms and the driver was told to drive to Whitehall.
'The minicab was then abandoned by the passengers who ran off. A police officer challenged the driver of the minicab who had stopped outside Downing Street. He then raised the alarm. While the area was being cleared, the car exploded.'
He said there were no injuries and damage was confined mainly to the car.
Last night's attack came on Commander George Churchill- Coleman's last working day as head of the anti-terrorist squad. He was at the scene shortly after the blast.
Last night's blast, using a different tactic, poses a new problem in the fight against terrorism. In February 1991, the police tightened security in Whitehall after an IRA mortar attack on No 10.
The mortar was launched from the back of a van in a street adjoining Whitehall. The area is covered by security cameras and constant police patrols. Then the IRA planted a bomb which exploded beside a car outside the Ministry of Defence near by. The area had been cleared, however, and no one was hurt.
Last night Catherine Gilchrist, 35, said: 'I was coming up the Embankment and I heard this really loud explosion - a loud reverberating boom. At first I thought it was the trains but then I was told by a policeman that it was a bomb.'
Adam Christodoulou, 22, from north London, said he was working as a DJ in a pub off Whitehall.
'The first thing we knew was the manageress came down and told us that a bomb had gone off and we were to stay inside,' he said. 'Then she told us we had to leave the building immediately.'
The blast comes after a series of more than 15 IRA attacks in the past month and in the wake of a police seizure of a cache of 77lb of Semtex in east London.
The recent spate of bomb attacks in the capital began on Wednesday 7 October when five people were slightly injured in an explosion near Piccadilly Circus.
There was a second blast near a telephone junction box in Flitcroft Street, near Centre Point, the CBI headquarters, on the same day.
One man died after an explosion at the Sussex public house in Covent Garden.
Until last night, the most recent blast was on Sunday when a small device exploded outside Morpeth Mansions in Westminster, a building popular with MPs. Lord Prior, a former Secretary of State for Northern Ireland, has a flat there.