At least six people were also injured in the blast, officials say, which took place outside the offices of the Nepal Oil Corporation
A little-known militant organisation, the Unified National Liberation Front, has said it carried out the attack.
There has been no comment from the government as yet.
"A bomb blast killed two people and injured five in an area near government offices and the district court. The explosion occurred at 1:25pm (0740 GMT)," Nepal police spokesman, Binod Singh, was quoted by news agency Agence France Presse as saying.
"A special team of police have been deployed in the area. They are gathering evidence and the area has been cordoned off."
A person claiming to be a spokesman for the Unified National Liberation Front said it was a group fighting for the rights of indigenous communities and cited the government's inability to curb corruption and fuel price rises as reasons behind the attack, BBC Nepali reports.
At least three people have been killed in a bomb blast in a busy, central area of the Nepalese capital, Kathmandu, police say.