A suspected suicide attack blew apart a well-known tourist cafe in the Moroccan city of Marrakech on Thursday killing at least 15 people, including 11 tourists, and injuring at least 20 more. There were unconfirmed reports that one of the dead was a British tourist.

If the bombing is the work of Islamists, it will be their first major attack in Morocco since 2003, when a spate of suicide bombings in the commercial capital, Casablanca, killed more than 45 people.

At around 11.50am the blast ripped through the second story of a cafe overlooking Marrakech's Jamaa-el-Fnaa square, the most popular tourist spot in the old imperial city at the foot of the Atlas mountains.

The Argana cafe, lauded in guidebooks for its panoramic view, was blown apart by the force of the explosion, its second storey reduced to mangled wreckage. Witnesses described the blast sending people flying from their chairs.

The square, normally full of tourists and local vendors and storytellers, was swept up in panic as ambulance crews recovered dismembered bodies from the debris. A photographer described "shredded bodies" being pulled from the cafe. There were gruesome injuries at the city's main hospital, where at least 20 wounded were being treated.

Boris Thiolay, a journalist for the French weekly L'Express who was in the square at the time, described a deafening explosion. "We all jumped, then we saw a plume of black smoke rise above the restaurant and the souk."

A local hotel worker told France-Info she heard a great boom and everything in the square suddenly went grey.

There were conflicting accounts of how the attack took place. One witness who escaped unharmed told Agence France Presse that a man had entered the cafe and ordered an orange juice before blowing himself up minutes later. Others said a bomber dropped a suitcase before walking out of the building.

"I heard a massive blast. The first and second floors of the building were destroyed," one local woman told Reuters. "Some witnesses said they had seen a man carrying a bag entering the cafe before the blast occurred."

The Moroccan interior ministry said early evidence collected from the scene confirmed it was a bomb attack. Other local officials said indications were of a suicide attack and traces of nails were found in one of the bodies at the hospital. Initially, within moments of the explosion, officials had blamed a gas canister catching fire.

Eleven of the dead were believed to be tourists, around half were women and at least six were French, according to Moroccan television. The Elysée confirmed that many of the dead and injured were French.

President Nicolas Sarkozy condemned a "hateful, cruel and cowardly attack".

An unconfirmed report on Le Figaro's website claimed a couple from Marseille were among the dead, as well as one Briton.

Marrakech is Morocco's top city-break destination and the blast came during French school holidays and at the start of the UK's extended bank holiday.

"You can't find a more emblematic target than Jamaa-el-Fnaa square," said one restaurant owner in the city.

"With this attack and amid the worrying unrest in the region, tourism will hit the doldrums."

The Moroccan government did not say whether the attack was thought to have been carried out by Islamists. In January, the Moroccan interior ministry said 27 suspected terrorists recently arrested in the south of the country had links to al-Qaida in the Islamic Maghreb, a regional offshoot of the group. Last week, men claiming to be Moroccan members of al-Qaida's north African wing appeared in a video posted on YouTube threatening to attack Moroccan interests.

Two weeks ago the king, Mohammed VI, pardoned or cut the sentences of 190 detainees, including Islamists and Sahrawi political prisoners, as part of his promised concessions on rights and judicial independence.

Last month he announced political changes and promised constitutional reform in an attempt to stave off a knock-on effect from the Arab popular uprisings that have overthrown Tunisia's dictator and Egypt's autocratic regime.

Since 20 February, there have been three nationwide mass demonstrations for democracy and equality in Morocco, which is plagued by massive social injustice and a growing gap between the rich and the very poor.

The Marrakech blast is likely to hurt Morocco's tourist trade, a major source of revenue, which is already struggling to recover from the effects of the global downturn.

Morocco's main stock exchange, the Casablanca bourse, was down 3.3% by early afternoon.

"People are panicking," said a trader on the bourse. "This is a terrorist act and it will affect the economy and tarnish the country's image. Local investors are selling."