The police said a male passenger in the car was declared dead at the scene, while the driver, who was also a man, was injured and remains in hospital in a stable condition.
British interior minister Priti Patel said https://twitter.com/pritipatel/status/1459919035152404480 in a tweet she is being kept regularly updated on the incident.
Three men – aged 29, 26, and 21 – were detained in the Kensington area of the city and arrested under the Terrorism Act, the police said in a statement.
Police understood that the car involved was a taxi that pulled up at the hospital shortly before the explosion occurred.
Chief Constable Serena Kennedy said police were called to reports of a car explosion just before 1100 GMT on Sunday.
“Work is still ongoing to establish what has happened,” she told media.
“We are keeping an open mind as to what caused the explosion but given how it has happened, out of caution, counter-terrorism police are leading the investigation supported by Merseyside Police.”
The police said the explosion had not been declared a terrorist incident at this stage. (Reporting by Paul Sandle and Aakriti Bhalla in Bengaluru; Editing by Raissa Kasolowsky and Barbara Lewis)