Mechanical problems triggered a fire that raced through a bus in Panama City on Monday, killing at least 18 people, injuring 17 and sending passengers jumping from the flaming vehicle, police said.

Investigators using trained dogs found no evidence of explosives on the city bus and believed some form of fuel leak was to blame for blaze. The bus lacked an emergency exit.

"We found absolutely no trace of the presence of explosives," said Jaime Jacome, director of Panama City's Technical Judicial Police. "What there was was a lot of gasoline."

Witnesses said they saw smoke pouring from the area around the motor seconds before the bus caught fire. Authorities were checking the charred remains of the motor and bus for clues.

Many passengers were seen scrambling to get off before flames engulfed the bus. At least 17 people managed to escape but all were hospitalized with severe burns.

Firefighter Cecilio Lasso said four of the 18 killed were children.

The fire occurred in the Bellavista section of downtown Panama City. The remains of those killed were initially laid out on a crowded street, but eventually removed by emergency crews.

Traffic was snarled in all directions for hours and television stations beamed gruesome scenes of the aftermath live to all of Panama.

"The victims were piled up in the back of the bus one on top of the other," Jacome said. "We are analyzing the motor to determine the cause of the fire."

Ovigildo Herrera, deputy director of transportation authorities, said the bus was operating with faulty brakes and no licence plates.

"That bus didn't meet safety standards," he said.