One eye-witness said about five children were in the Tollcross Primary School playground looking up at the burning flat, moments after the windows were 'blown out' by the blast.
Pictures shared on social media show a huge amount of rubble strewn across the pavement and road below.
Kimberley Reed, who works in Ponton Street, told the Evening News she saw the fire start from her office window.
She said: "We saw it start from our kitchen just before 5pm. We saw smoke and called for a fire engine and could see right into the windows which were alight. The windows were blown open and the glass was smashed out by the explosion from the side facing the primary school playground which still had kids coming out.
"At first it was just smoke which got heavier, then large flames followed by ash started coming out and when there was a break in the smoke, we could see the whole room alight.
"Five kids were in the playground at the time looking up to the burning building, and one was crying.
"We saw all of the rubble when we left work at 5:10pm, some pieces as thick as a football and more than the length of my arm. I work in Edinburgh's financial sector and all offices were about to leave for the day. My friend, who also works along Fountainbridge said her boss was walking past and literally just missed the rubble falling on her head."
The area has been cordoned off by police as firefighters remain at the scene.
Other local workers described how they felt their office 'shaking' at the time of the explosion.
Pictures also show flames coming out of the building and thick smoke billowing out above Fountainbridge.
On Tuesday evening, the City of Edinburgh Council tweeted that Tollcross Primary School, the nursery and community centre will be closed on Wednesday to the incident, with further updates to be issued.