The route 26 bus to Hackney Wick, a hybrid bus, was outside Liverpool Street Station when smoke started pouring out before catching fire.
London Fire Brigade was called just before 10:00 BST and put out the flames and cleared up the fuel spillage.
Ben Lewis, a local resident, who filmed the fire and explosion said people were left "aghast" at the sight.
No one was on board and the driver had left the bus.
London Fire Brigade said 50% of the energy-efficient hybrid bus was damaged by the fire, the cause of which is not yet known.
Bishopsgate was closed between Threadneedle Street and Wormwood Street until about 14:25 BST.
Tony Akers, Transport for London's head of bus operations, said: "At approximately 9.55am on Sunday 2 October, a route 26 double-decker hybrid bus, operated by CT Bus, suffered a fire at Bishopsgate Junction.
"No passengers were on board at the time, and the driver alighted safely. There will be a full investigation into the incident."
Ben Lewis, an engineer who lives in the area, was filming the bus fire when there was "a little explosion".
Mr Lewis said he had just come out of a supermarket when he saw the bus in flames, but decided "it's time to leave" after the explosion.
"Everybody seemed aghast, motionless. It's not something you see every day in London."
Isabelle Kiff who had planned to board the bus said: "Corner of Camomile Street and Bishopsgate near Liverpool Street station.
"I turned the corner and saw the bus I was planning to get on in flames.
"The police then arrived and told everyone to move away then the fire fighters arrived and started putting it out."

Kane scored both goals as Spurs came from behind to secure a 2-1 win over Arsenal at White Hart Lane.
Gunners boss Arsene Wenger said England should select Kane, 21, after scoring 22 goals in 34 matches this season.
And former England international Murphy added: "Not just selected, but build the team around him."
Murphy, speaking on Match of the Day, added: "He's so young, but he's so powerful.
"I'm struggling to see a weakness in the lad's game."
Wenger said: "When you have scored the number of goals he has scored, if you don't put him in there somebody else will give him a passport."
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Hodgson was in attendance at White Hart Lane as he continues his preparations for England's next European Championship qualifying fixture against Lithuania on 27 March, before a friendly against Italy four days later.
Kane, who is also eligible to play for the Republic of Ireland through his father, has represented England at every level from Under-17 to Under-21, and has previously stated his desire to break into the senior England squad.
Hodgson has used Danny Welbeck and Wayne Rooney in attack for England's previous four fixtures, but can now call on Liverpool's Daniel Sturridge, who has returned from injury, and the in-form Danny Ings at Burnley and QPR striker Charlie Austin.
Both of Kane's goals on Saturday came in the second half as his close-range finish following a corner and well-taken header turned the game around after Mesut Ozil's close-range finish opened the scoring for Arsenal in the first half.
"Harry showed today that he is a great player, with a great performance, but my idea is that he can improve still and we need to push him to develop his potential because his potential is massive, but it was a fantastic performance today," said Tottenham boss Mauricio Pochettino.
Kane told BBC Sport: "It's my first north London derby and it was incredible. I watched so many as a kid and the feeling now is one I can't describe and won't forget. I'm happy for the team and the club. It is a special day.
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"I am working on all aspects of my game and when I get in those areas I am confident. I am enjoying my football at the moment and playing with a smile on my face.
"It [the next England game] is not until March and there is a lot of football to play before then. I have just got to keep doing what I am doing and do my best for the team, and we will see what happens."
A double-decker bus has burst into flames outside a train station in central London.
[NEXT_CONCEPT]
England manager Roy Hodgson should build his team around Tottenham striker Harry Kane, according to ex-Spurs midfielder Danny Murphy.