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Three people were killed and 34 injured in an explosion on Tuesday after a man brandishing a knife took several hostages in an office building in the Japanese city of Nagoya and set the area alight.

Television pictures showed paper and glass flying through the air and screams could be heard as the blast ripped through the third floor offices of a delivery company in the industrial city, 170 miles west of Tokyo.

Public broadcaster NHK said the three dead were the hostage-taker, the manager of the office and a police officer.

Several police personnel and fire fighters were among the injured.

Police said a man who appeared to be in his 40s or 50s had taken eight employees hostage and barricaded himself into the office earlier in the day.

He then doused the area with a liquid and threatened to set the building on fire, demanding that he be paid three months' worth of wages.

Seven of the eight hostages were released before the blast and are unharmed, media reports said.

Disputes over financial matters also seem to have been the trigger for two hostage-taking incidents in Japan last December, one at a building contractor's office and another at a bank.

A former taxi driver was sentenced to death earlier this year for setting fire to the office of a consumer credit firm and killing five staff during an attempted robbery in 2001.

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