The bombing came just weeks after a twin suicide bombing killed 25 people at the Iranian embassy in the same area and marked a new breach of the tight security in Hezbollah's stronghold.
Hezbollah's public confirmation last April that its fighters had intervened in the Syrian civil war alongside President Bashar al-Assad's forces has deepened sectarian divisions between Shiites and Sunnis, most of whom sympathise with the rebels.
"The toll from the terrorist explosion in Haret Hreik is four killed and 65 wounded," Health Minister Ali Hassan Khalil said in a statement carried by the official National News Agency (NNA).
Earlier, a ministry source had reported five killed.
An AFP photographer in the densely populated area saw flames and smoke rising from burning vehicles and at least three damaged buildings.
Hezbollah's Al-Manar television aired footage of bystanders scrambling to douse burning vehicles in a car park beneath a building whose facade had been burned out.
"The terrorist explosion targeted a densely populated residential area, just 150 to 200 metres (yards) away from Hezbollah's political bureau," Al-Manar reported, but said the building was not thought to have been the target.
The district is symbolic for Hezbollah, which once based many of its leadership institutions in the area. Al-Manar's studios were once just 200 metres away.
Much of the neighbourhood was reduced to rubble during the massive Israeli air bombing that accompanied its 2006 war with Hezbollah, but it has since been rebuilt.
The blast hit the busy Al-Arid Street commercial district. Panicked residents scurried around the streets as Al-Manar broadcast warnings to leave the area for fear of further bombs.
NNA reported that the explosion was caused by an explosives-packed four-wheel-drive vehicle.
President Michel Sleiman said the car bomb had been planted "by the same hand that plants terrorism, killing and destruction everywhere in Lebanon."
In a statement, he also called for solidarity among the Lebanese and dialogue among the country's divided leaders, and called on the security services to double their efforts and bring the perpetrators to justice.
Caretaker prime minister Najib Mikati said "the hand of terrorism does not differentiate between us, and it does not want stability for this country. Rather, it is planning a despicable conspiracy to drown the Lebanese in sectarian strife."
The US embassy tweeted: "We condemn today's terrorist bombing in #Dahieh #Beirut. Our condolences to the victims and their families."
And British Ambassador Tom Fletcher tweeted: "Condemn unequivocally today's callous attack in Beirut. Lebanese civilians again victims. Thoughts with their families and emergency teams."
Thursday's is the fourth bomb attack in south Beirut since Hezbollah announced it was fighting in Syria.
Prior to the bombing of the Iranian embassy, the southern suburbs suffered two bomb attacks.
One killed 27 people on August 15. A blast earlier that month caused no fatalities but wounded some 50 people.
Thursday's blast also comes amid soaring Sunni-Shiite tensions over the Syria civil war.
It also comes less than a week on from a car bomb in central Beirut that killed eight people, including an anti-Syrian former finance minister, Mohammad Chatah.
On Thursday, anti-Damascus former premier Saad Hariri, to whom Chatah was an adviser, condemned the southern Beirut blast as a "diabolical act."
A day earlier, Defence Minister Fayez Ghosn revealed that troops had arrested the leader of the Al-Qaeda-linked group that claimed the Iranian embassy attack.
Saudi national Majid al-Majid, "emir" of the Abdullah Azzam Brigades, was being interrogated at a secret location, Ghosn said.
The repeated violence in violence comes amid a major political crisis in Lebanon related to the war in Syria.
Divisions among pro- and anti-Damascus camps have prevented the creation of a new government ever since Mikati's cabinet resigned in April.
Damascus dominated Lebanon for nearly 30 years until 2005, after Hariri's father, ex-premier Rafiq Hariri, was killed by a car bomb. Though Syria withdrew its troops, Assad's regime still exerts influence through its allies.