Dozens of people are feared dead after a car bomb exploded in a market in Nigeria's north-eastern city of Maiduguri, witnesses said.

Boko Haram, the Islamic extremist group whose birthplace is Maiduguri and which is accused of a series of recent bomb attacks in the west African nation, was immediately blamed for the attack on Tuesday morning.

Explosions last week targeted the biggest shopping centre in Nigeria's capital, Abuja, killing 24 people; a medical college in northern Kano city, killing at least eight; and a hotel brothel in north-east Bauchi city that left 10 dead.

On Monday night, Nigeria's military said it had arrested a businessman who it alleged had "participated actively" in the mass abduction of more than 200 schoolgirls in April.

The explosives in Tuesday's attack were hidden under a load of charcoal in a van, according to witnesses who spoke on condition of anonymity for fear of reprisals.

Trader Daba Musa Yobe, who works near the popular market, said the bomb went off just after the market opened at 8am, before most traders or customers had arrived. Other witnesses said they saw about 50 bodies, and that five cars and some tricycle taxis were set ablaze by the explosion.

They said the death toll could have been worse but fewer traders and customers were around than normal because most people stayed up late to eat during Ramadan, the Muslim month of fasting from sunrise to sunset.

A security official at the scene confirmed the blast, saying many casualties were feared. He spoke on condition of anonymity because he was not permitted to speak to the press.

Boko Haram has adopted a two-pronged strategy this year of bombings in urban areas and scorched-earth attacks in north-eastern villages where people have been gunned down and their homes burned.

On Sunday, suspected extremists opened fire on worshippers in four churches in a north-eastern village and torched the buildings. At least 30 people were reported killed.

The extremists have been attacking with more frequency and deadliness in recent months, defying assurances by security forces and government that they were getting the situation under control.