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7 year oldWitnesses on social media said they heard what sounded like multiple "explosions" and saw billowing clouds of smoke coming from subway grates.
Toronto Fire Service confirmed that the fire began in an underground vault used to store electrical transformers.
Subway service was not affected, but police closed off the area near Bay Street and King Street.
Some buildings have also been evacuated because of the smoke.
"You don't want to be in the smoke," Toronto Fire Services platoon chief Kevin Shaw told media at a press conference.
A few minutes after the explosion, the blasts had died down but a BBC reporter on the scene said you could still here popping sounds "like popcorn" and smell acrid smoke in the air.
Mr Shaw said that the fire was "under control" and may have been triggered by damp weather.
No injuries are reported.