The Metropolitan Police declared a "major incident" after blocks housing businesses and part of the London School of Economics were cleared by the emergency services.
Firefighters said power cables had started a fire beneath the pavement in Holborn and they could not put it out until the current was switched off.
"@LondonFire: 6 fire engines & 35 firefighters at electrical fire on Kingsway in Holborn http://t.co/rZXe7CI9iL pic.twitter.com/3HO4wtq6uz" woah
— Majdie Hajjar (@MajdieHajjar) April 1, 2015
Footage from the scene showed the air filled with dark smoke that appeared to be streaming from potholes and underground vents.
People were seen pouring out of offices, restaurants, cafes and shops while roads were cordoned off by the emergency services.
Onlookers described "crazy scenes" and "madness" as smoke rose so high in the air that it could be seen from the Shard skyscraper.
"Holborn is chaos. All the manholes on Kingsway are smoking," Jordan Hatch wrote on Twitter.
Several buildings have also suffered power cuts due to the blaze, forcing some companies to send staff home, and Holborn Tube station has been closed.
A spokesperson for the London Fire Brigade warned that the situation in Holborn will get worse until electricity companies switch off the power and firefighters can put out the flames.
"When cables burn they produce a great deal of toxic smoke and it's not safe to be playing around with live cables," he added.
The alarm was raised at around 12.40pm after smoke was seen coming out of an inspection cover on the pavement in Kingsway.
Gas main has ruptured in #Holborn, sending flames shooting out of a manhole
http://t.co/bRKHileIst pic.twitter.com/aZWluKoS9X
— The Independent (@Independent) April 1, 2015
A 25 metre safety cordon resulted in around 2,000 people being evacuated from nearby buildings, including the Civil Aviation Authority's headquarters.
Six fire engines and 35 firefighters and officers are currently at the scene on standby to tackle the blaze and police are advising drivers to avoid the area as road closures continue.
Transport for London said Holborn Underground station would remain closed until the power supply was fixed and warned that closures on Kingsway and in the Strand Tunnel were causing queues back to Trafalgar Square.
aging and unkempt infrastructure? Endemic. No need to look for all this other hidden agenda stuff. Things are falling apart.