Police said the device was being dismantled by officers at the scene after it was found outside a theatre on Saturday evening.
US police and bomb squad officers in New York City have evacuated thousands of people from streets around Times Square following the discovery of a vehicle suspected to be containing bomb.
"This appears to be a car bomb that the bomb squad is in the process of dismantling," Paul Browne, a police spokesman, said.
"We do not know the motive."
Meanwhile, the New York Times reported that a federal official said the incident was not considered a terrorist threat and that the New York police department had told the department of homeland security to stand down.
The busy square in the heart of Manhattan was evacuated after the dark-coloured 4-wheel-drive vehicle was found to be smoking and a small flash was observed by firefighters.
Popping sounds were reportedly also coming from the car.
'Failed device'
Police and fire department sources said the device was being treated as a "failed device" and included explosives, burned wires, three tanks of propane and two canisters of gasoline.
Al Jazeera's Kristen Saloomey, reporting from Manhattan, said that while the square was shut down, life was going on as usual in areas nearby.
"New Yorkers have lived through many scares," she said.
"The SUV was a Nissan Pathfinder with licence plates from the state of Connecticut. The plates were actually traced and found to belong to another vehicle so obviously investigation is still going on."
A statement issued by the White House said the New York police department had done "excellent work" in responding to the incident.
Unconfirmed reports said someone had been seen running from the car.
The vehicle had been parked close to a theatre on the corner of 45th Street and Seventh Avenue showing a production of The Lion King.
Firefighters in bomb suits were seen at the area and a robotic device was being used to investigate the suspicious vehicle.
Police said they were evacuating several blocks around the scene in case there were other devices.
Times Square is one of the city's most high-profile attractions and police are deployed there in large numbers.
In December they closed the area while inspecting a van at first feared to contain a bomb, but which turned out to be carrying nothing dangerous.
Archive photo of Times Square. 
A car containing a bomb was discovered in , New York City, causing the evacuation of streets surrounding the area. 

Reports say the vehicle, a , parked outside a theatre on 45th Street and Seventh Avenue, had smoke coming out of the back at around 6:30 p.m EDT (10:30 p.m. UTC). Unconfirmed reports say an unknown man ran away from the car. A roughly square area of the city, its boundaries formed by 43rd and 48th Street and 7th and 8th Avenue, was evacuated.

The  bomb squad was called in and were able to retrieve the package using a . Officials removed , consumer-grade , two five-gallon cans of gasoline, three propane tanks, electrical wiring, and two clocks with batteries that apparently were fashioned as one or two . The bomb has been described as "amateurish". No casualties or injuries were reported.

As of yet police have not named a suspect and are reviewing security footage. The car used by the suspect was  and had a non-matching license plate; the legitimate owner of the plates does not appear to have been involved in the incident.

President Barack Obama has congratulated the speediness with which the New York Police Department responded.

New York has been in a state of constant alert since the  that occurred on September 11, 2001. In September 2009, a plot to attack the  with  was uncovered by police. In December 2009, Times Square was evacuated due to a illegally parked van, although it contained no explosives. On March 6, 2008, a small bomb was set off in front of the United States armed forces recruiting station in .