The incident in western Japan's Wakayama came less than a year after the assassination of former prime minister Shinzo Abe, which traumatised the country and forced a security shake-up for public officials.
Kishida was in the city to deliver remarks in support of a ruling party candidate at a local port when a disturbance rippled through the crowd gathered to hear him speak.
Footage from national broadcaster NHK showed the prime minister turning to look backwards as a person was detained by security and people moved away, some shrieking.
Seconds later, a blast was heard and white smoke filled the air.
Footage and photos from the scene showed a silver, pipe-like object on the ground, but it was not immediately clear whether it had caused the blast and smoke.
Government officials said a man had been arrested on suspicion of obstruction of business.
He has been identified as a 24-year-old man from the Hyogo region, a Wakayama police official told AFP. There was no immediate information on a potential motive.
People at the scene described moments of panic.
"I ran frantically, and then, 10 or so seconds later, there was a loud sound and my kid started crying. I was stunned, my heart is still beating fast," one woman told NHK.
A man at the scene told the broadcaster that "when we all stopped in front of the podium, someone started saying 'culprit!' or something, or 'an explosive was thrown,' so everyone started dispersing fast."
"And then, about 10 seconds after the culprit was captured, there was a blast," he said.
Kishida was unharmed, and soon resumed campaigning, including a stop at a local train station.
"There was a loud blast sound at the previous speech venue. Police are investigating details, but I'd like to apologise for worrying many people and causing them trouble," he said.
"An election that's important to our country is taking place, and we must work together and follow through on it."
He is expected to appear later Saturday afternoon in Chiba, east of Tokyo, despite the incident, which his party's election strategy chairman Hiroshi Moriyama described as an "unforgivable atrocity".
Security at local campaign events in Japan can be relatively relaxed, in a country with little violent crime and strict gun laws.
But the country bolstered security around politicians after the assassination of Abe, who was shot and killed while speaking at a campaign event in July 2022.
His alleged assassin, Tetsuya Yamagami, reportedly targeted him over his links to the Unification Church, and the incident sparked revelations about the connection between the sect and political figures in Japan.
Yamagami was reportedly angry at the sect over large donations his mother made to the group, which left the family bankrupt.
The head of Japan's National Police Agency, and the local police chief, resigned in the wake of Abe's assassination after an investigation confirmed "shortcomings" in the security for the former leader.
The investigation slammed a system under which local police were given responsibility for the security of visiting senior officials.
With proper security, "it is deemed highly probable that this incident could have been prevented", the report concluded.
The incident comes as climate and energy ministers from the Group of Seven countries meet in the northern city of Sapporo, and a day before the bloc's foreign ministers arrive in Karuizawa in Nagano for talks.
Japan will host the G7 leaders' summit next month in Hiroshima and security concerns have regularly been raised.
"The fact that an incident like this happened at this time must be taken seriously," anti-terrorism expert Isao Itabashi of the Council for Public Policy told NHK.
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