"The Oslo police bomb squad has removed the object and can confirm that it was a dummy bomb," police said in a statement. "The car has been used for an internal drill at the embassy, and the find can be connected to this."
Norwegian police said the embassy and the surrounding area, including parts of the royal palace, were also evacuated. Norway's royal family was not in the palace at the time.
The U.S. Embassy did not immediately comment about how the mistake had been made.
The Associated Press contributed to this report.