An area around a central Dunedin building has been cordoned off, following the discovery of what is believed to be a ''corroded and unstable'' World War Two mortar round.

Buildings evacuated near the Bond St site have been re-opened to workers and residents, apart from the Dunedin Hospice Shop, which is still cordoned off.

All roads apart from an area of Bond St by the Hospice Shop have been re-opened.

The explosive was found in a donated box under a train set at the Dunedin Hospice shop, and is understood to have been at the building for three days.

Hospice Shop manager Cat Callanan said she picked up the device and asked staff what it was.

A staff member said the device, which is about 25cm long and wet to the touch, ''looks like a bomb''.

Sgt Steve Aitken said police were trying to determine the device's blast radius.

Police were ''not 100% sure" if it was live or not.

Bomb disposal experts are expected in the city this evening to dispose of the explosive .