A man has been arrested for making threats to kill by allegedly claiming there was a bomb on a bus.
Witnesses said the man ran down the stairs of a double decker bus and yelled: "There's a bomb" - sparking a citywide alert.
As passengers fled in terror, police cordoned off most of Charles Street, in Leicester city centre, during rush hour and called out the Bomb Squad, who took a bag off the bus and blew it up.
It was found not to be dangerous.
Thousands of bus-users were caught up in the chaos and many shops and businesses were evacuated.
Police were called to Charles Street at about 5.20pm and cordoned off a wide area around a bus parked opposite the Haymarket station with its hazard lights flashing.
One passenger who was on the bus - a First number 22 service which goes to Evington - told the Mercury how fellow travellers fled in terror when the alarm was raised.
Leon Smart, who lives in Humberstone Gate, said he heard someone screaming: "There's a bomb."
He said: "Someone came running down the steps shouting and screaming. We all just ran out. There must have been 30 or 40 people on board. People were scared."
A 43-year-old man was arrested at the scene for allegedly making threats to kill and was last night being questioned by detectives.
A controlled explosion was carried out on a bag he was carrying, shortly after 8pm on a footpath near Wilkinson's store and it was determined the contents were not dangerous.
Bus passengers were left standing in the rain after much of Charles Street - the thoroughfare for many city centre buses - was taped off by police.
The cordon - which included parts of Humberstone Gate and Churchgate - remained until 8.45pm, about three hours later.
Steve Zankar, commercial director of First Leicester, said: "This would have affected the bulk of our services.
"It was chaos, especially for people just trying to get home from work. The only fortunate thing is that it happened at the tail-end of the peak time.
"It's very disruptive, but in these cases we have to be led by the police."
Dozens of Arriva services would also have been affected, he said. Nobody from Arriva was available for comment.
James Greenwood, 39, from Beaumont Leys, said: "I've been trying to get home, but nobody can get anywhere near the bus stops. It's madness."
Sarah Ingles, 18, from Clarendon Park, said: "It's really frustrating for anyone trying to get home. People are sick of this kind of disruption."
Charles Street shop worker Linda Mason said: "I think police sealing off the area like that is the right thing - you can't take these things lightly."
A spokesman for area traffic control said that apart from delayed bus services, there were "no serious problems" for traffic in the city centre.
Superintendent Steve Boulton said: "We are confident that this is an isolated incident and does not have any links to terrorism. I would like to thank members of the public for their patience and co-operation.''
On Wednesday, the Shires shopping centre was evacuated because of a suspicious package which turned out to be a beeping baby monitor.
Yesterday, bomb disposal experts were called in after a suspicious package was reported at British Gas offices in Leicester. About 500 workers were ordered to leave the site in, Aylestone Road, for about three hours.
The alarm was raised after the parcel went through a scanner, which is a routine precaution at the site.
A Ministry of Defence bomb squad arrived at the scene at 12.30pm and investigated the parcel, which was found to be a "standard delivery" and was declared safe.
Staff were allowed back into the building at 2pm.