City police chief M.N. Reddi "did not rule out" a terror angle in the 8.30pm attack on Church Street.
The blast came barely two weeks after threats of "revenge attacks" on social media following the arrest of alleged Islamic State (IS) propagandist Mehdi Masroor Biswas, a young executive who hails from Bengal.
The woman who died was identified as Bhavani, a visitor from Tamil Nadu. Her relative, Karthik, is in hospital and "completely out of danger, said Reddi, adding it was not clear how the two were related.
Reddi said no one had owned up to the incident so far but added that the investigators were working on the evidence for clues.
On the possibility of a terror angle, he said: "It cannot be ruled out."
Some TV channels reported that two suspects had been picked up at night but Reddi denied it. "Nobody has been detained."
According to the police commissioner, the bomb went off outside Coconut Grove restaurant on Church Street - called so because there are a couple of churches in the vicinity. The party zone also comprises the nearby M.G. Road, Brigade Road and Residency Road.
The bomb was apparently placed behind some flowerpots on the pavement outside the popular restaurant. A section of the pavement slabs caved in.
Bhavani, the victim, happened to be walking past Coconut Grove with Karthik when the device went off, Reddi said. She was rushed to the nearby Mallya Hospital in a critical state and died there, the police said.
Reddi admitted "there had been a threat perception in general in view of the festivities and due to various circumstances in and around the city" . "But that has been generic and we have been alert," the top cop said but refused to elaborate.
Rumours on social media had swirled of late about terror attacks after the arrest of Biswas, the alleged IS propagandist.
The cop who led the team that arrested the executive was warned on Twitter that he would face a "revenge attack". Days later, WhatsApp messages floated around about a "revenge attack on the city".
The blast came a day after the police allowed pubs and restaurants in the area to stay open till 2am in the New Year week.
The deadline was 11pm earlier but was extended to 1am, only on Fridays and Saturdays, in June this year. It was not clear if Sunday's incident would prompt the police to curtail the timings.
"We have deployed additional forces, dog squads and forensic teams to probe the incident. They are looking at all available traces and material which would be taken into account in the investigation," Reddi told reporters at the blast site.
The teams arrived a little after 9pm and were seen scouring the area, which was cordoned off from all sides.
"We have summoned experts from the internal security division, additional forces from the armed reserve and anti-sabotage teams to keep a watch on the city," the police chief said.
Union home minister Rajnath Singh tweeted that he had called Karnataka chief minister P.C. Siddaramaiah and offered all assistance in the probe. Siddaramaiah urged people not to panic and said the situation was under control.
Union law minister D.V. Sadananda Gowda, who hails from the state, visited the spot. He termed the incident as "unfortunate" and said it shouldn't have happened in the "by and large peaceful city".
The last explosion in the city occurred in April 2013, with a powerful bomb going off outside the state BJP headquarters. Seventeen persons were injured.
- The Telegraph, Calcutta
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