A rocket was fired at the US embassy this morning, striking the front of the building but causing no injuries.
A senior police official said the blast was an act of terrorism, raising fears of a resurgence of far-left Greek militant groups.
Police cordoned off streets around the heavily guarded building after the explosion shortly before 6am (0400 GMT).
The shell struck the third floor and smashed glass in nearby buildings.
Investigators were examining what they believed was the device used to fire the rocket shell from a construction site near the embassy.
"This is an act of terrorism. We don't know where from," Attica Police Chief Asimakis Golfis said. "There was a shell that exploded in the toilets of the building ... It was fired from street level."
Embassy officials confirmed that an explosion had taken place and said that no one had been injured.
US ambassador Charles Reis said the damage was "not extensive."
"There can be no justification for such a senseless act of violence ... The embassy was occupied at the time (but) nobody was hurt," he said.
Reis said there had been no warning of the attack.
"We're treating it as a very serious attack. We will determine what it is when we know (more)," he said.
Authorities were searching apartment buildings near the US Embassy and a nearby hospital for evidence.
"At 5.58am an explosion was caused by a self-propelling shell, causing minor damage at the front of the building ... The Greek Police are working closely with the embassy authorities," a police statement said.
"I heard a loud bang. I didn't realize what was going on," said Giorgos Yiannoulis, who runs a kiosk near the embassy.
Traffic came to a standstill across parts of central Athens, as police and emergency services scrambled to the embassy building, which is a frequent destination for protest groups.
It was the first major attack against a US target in more than a decade, following the arrest of members of Greece's far-left November 17 terrorist group.
The group was blamed for killing 23 people - including US, British and Turkish officials - and dozens of bomb attacks.
In 2003, a special court gave multiple life sentences to November 17's leader, chief assassin and three other members. Lesser sentences were given to 10 others.
November 17 carried out a similar rocket attack against the US embassy in 1996, causing minor damage and no injuries.Reuse content