Troops and police forming a cordon around the building took cover but there was no sign of activity within the walled compound and the situation quickly returned to normal.
Police suggested that the Tupac Amaru guerrillas holding more than 100 hostages may have set off the explosives as a warning to the authorities. A Red Cross spokesman claimed the blast was caused by an animal treading on a mine laid by the rebels in the compound. There was no sign of damage to the building nor was anyone reported to be injured.
More than 400 hostages have been freed since the rebels stormed a pre- Christmas cocktail party and they say the guerrillas, said to include a 16-year-old girl, are carrying backpacks loaded with explosives, ready to blow up themselves and the building if troops attack. The rebels claim to have laid mines or dynamite on the roof and all around the building in the San Isidro district of Lima. About 1,000 troops and police have encircled the residence.
Several hours after the blast the rebels released another hostage - the Guatemalan ambassador, Jose Maria Argueta, who walked out of the compound accompanied by the Red Cross negotiator, Michael Minning. He was the second hostage to be released within 24 hours, but 103 hostages are still being held. On Christmas Day, an ailing Japanese diplomat - Kenji Hirata, First Secretary at the embassy - was brought out in a wheelchair by International Red Cross workers and driven away in an ambulance. He was said to be suffering from dehydration.
Hostages and rebels received a Christmas Day treat when President Fujimori's daughter, Keiko - Peru's first lady since his divorce - and a group of white-uniformed waiters delivered 10 turkeys to a spot close by the building. Red Cross workers took the food inside.
Water, electricity and phone lines to the building have been cut off to heighten pressure on the rebels. Drinking water and food is being allowed in but the lavatories are over-used and hygiene is becoming a problem.
One freed hostage said Peru's Foreign Minister, Francisco Tudela, still being held, had joined others in cleaning the lavatories. Such reports brought wry smiles from poor Peruvians, many of whom sympathise with the rebels while mostly condemning their methods.
"The diplomats and businessmen who are living with too many people in too little space and with inadequate food and water and medicine are now living like the majority of Peruvians," said Hernando de Soto, a former adviser to President Fujimori who now attacks his economic policies.
The guerrillas are demanding populist economic policies, freedom for hundreds of their jailed comrades, safe passage out of the besieged building to an unknown location and an unspecified "war tax" of cash.
Diplomats in Lima say at least two Japanese corporations have made cash offers to buy the freedom of executives held hostage. The rebels are holding more than two dozen Japanese businessmen for no apparent reason other than their ransom value, the diplomats noted.
A Catholic bishop, Luis Cipriani, was believed to be carrying a message from Mr Fujimori and possibly negotiating with the guerrillas when he visited the residence on Christmas Day. He held a mass but stayed on for six hours.