Police told Xinhua that they believe the bomb was dropped by the US armed forces when they were bombing Japanese military facilities during World War II.
Police said a bomb disposal squad had been called to the site near Queen’s Road East where the Emperor Group is building a new hotel.
The construction site and its neighbouring area have been cordoned off and more than six firefighters are present at the site.
A witness said that part of the bomb, about one metre long, has been unearthed and its diameter was about the length of an adult’s two arms.
The bomb was found plunged vertically into the ground and it is presumed to be an aerial bomb, sources said.
According to police, residents within 500 metres of the bomb have been asked to stay away from the area.
Japanese invaders occupied Hong Kong from 1941 to August 1945 and World War II bombs have been regularly discovered there since the end of the war.