The alert was raised at shortly after 4pm over the discovery of a backpack near of the doors of the Public Administration Ministry.
The ministry offices were evacuated and traffic diverted from the area while a specialist bomb disposal unit (Tedax) were sent to investigate.
The ministry of defence and economy ministry are also located in the area of the alert.
But within the hour police confirmed that it had been a false alarm.
Spain has maintained its terrorism threat level at four. It chose not to raise the level to the maximum five in the wake of the Paris attacks although it has stepped security around public events.
Spanish authorities are holding a special security meeting Wednesday afternoon to discuss extra measures needed at Saturday's El Classico match between Real Madrid and FC Barcelona.