Armed separatist group claims responsibility for killing man and threatens new train line.
Spain’s interior minister has blamed Eta for the attack, which occured at the Campo de Las Naciones trade fair centre.
“What Eta has done this morning shows that the Supreme Court did the right thing,” Alfredo Rubalcaba, said from the scene of the blast.
The explosion occured near the offices of Ferrovial, a construction company which has been involved in a high-speed rail project linking the capital to the Basque Country.
In December, Eta warned contractors working on the project they would become targets if they continued to work on the train line.
The blast is the first suspected Eta attack in Madrid since a bomb in December 2006 at the capital’s airport, which killed two people and led the government to break off talks with the group.
Eta, which stands for Basque Homeland and Freedom in the Basque language, has killed more than 825 people since 1968.
The group has recently claimed responsibility for two attacks in December 2008, including the fatal shooting of a Basque businessman linked to the high-speed train project and a car bomb outside a Basque television station.