All available evidence pointed to the blast in Calle Toledo, a street leading out from the city centre, being caused by a gas leak, Madrid's Emergency Services said, although the factors which triggered the leak were yet to be determined.

Firefighters were still on the scene late in on Wednesday evening, with Madrid's Emergency services tweeting: "The (building's) state has yet to be determined ... and gas is burning at a controlled rate."

Electrician David Santos Munoz, a 35-year-old father of four, was identified as one of the dead, Madrid's Archdiocese said in a tweet, saying he had gone to the parish-owned building earlier in the day to lend a hand.

Spanish authorities said an 85-year-old woman also died in the explosion, and Bulgaria's foreign ministry said the third victim was a 47-year-old Bulgarian citizen.

The building was a complex that provided residential training for priests and also gave meals to homeless people, a neighbour said.

The top five floors were destroyed, with walls blown out, while the bottom two floors were still mostly intact, but charred in places from the flames.

Of the 11 people wounded, four were hospitalised, one with severe thoracic and orthopaedic injuries and whose condition was deemed grave.

After the blast, rescue workers moved elderly people from a nearby nursing home.

Australian Associated Press