Officers are currently evacuating the city's bus station and have extended an exclusion cordon to include the Princesshay centre, Bedford Square, High Street, Queen Street and Paris Street.
Bomb disposal experts have been sent to the restaurant.
Police have asked stores in the area to retain any CCTV footage in case it is needed at a later date.
'Three explosions'
At least one man was injured in the incident, which happened at a time when the recently opened centre would have been crowded with shoppers.
No details have been released about the injured man.
Juliet Joffe, a director of Giraffe, confirmed to the BBC a "small explosion" had occurred in the restaurant.
She said the restaurant was evacuated "quickly and efficiently".
Eyewitness Peter Lacey who was in the restaurant with his wife told BBC News: "There were three explosions. It is my impression they sounded more like gunshots than a bomb, like a lightbulb exploding.
"They came from a locked toilet."
Alison Fewins, 27, from Exeter, was shopping with her friend, Louise Platt, also 27, when the incident happened.
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Devon and Cornwall police hold a news conference
Ms Fewins said: "We were about three or four shops away when we felt a vibration and heard a noise which we thought was building work.
"I am a bit shaken. It's all a bit scary that it happened here."
Devon and Cornwall Police said more resources are being sent to the area.
Assistant Chief Constable Bob Spencer said: "We are carrying out a careful evacuation of the premises using the police and other emergency services that are at the scene.
"We will update the people of Exeter about what has happened as soon as we can.
"In the meantime, I'd urge motorists to stay away from the city centre area and road delays are likely."
Commenting on reports of the possibility of further devices he told BBC News: "There's always that potential."
The £230m Princesshay development officially opened last September. The scheme has been heralded as the biggest single investment in regeneration in the city's history.
It contains a mix of shops, restaurants and apartments.
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