A fresh explosion rocked reactor 2 at the Fukushima Daiichi plant in Japan - 250km (155 miles) north-east of Tokyo - in the early hours of Tuesday.
Prime Minister Naoto Kan has urged those living within 30km (18 miles) of the plant to stay indoors.
The crisis was sparked by a 9.0-magnitude quake and tsunami on Friday.Thousands of people are believed to have died.
"Now we are talking about levels that can impact human health," said the Japanese Chief Cabinet Secretary Yukio Edano.
In his televised address , Prime Minister Kan said: "There is still a very high risk of more radiation coming out."He added that the last remaining people within a 20km (12 mile) exclusion zone around the plant had to leave, and that those living between 20km and 30km from the site should remain indoors.
Radiation levels around Fukushima for one hour's exposure rose to eight times the legal limit for exposure in one year, said the plant's operator, the Tokyo Electric Power Co (Tepco).
A fire which briefly broke out at the plant's reactor 4 on Tuesday is also believed to have led to radioactive leaks.
Higher radiation levels were recorded on Tuesday south of Fukushima, Kyodo news agency reported.
Levels in Tokyo were higher than normal, but officials said there were no health dangers.
Shares on the Tokyo stock exchange plummeted 14% before recovering slightly. The leading Nikkei index ended the day 10.55% lower. It had already fallen by 7% on the previous day.
On Monday, a hydrogen blast at the Fukushima plant's reactor 3 was felt 40km (25 miles) away. It followed a blast at reactor 1 on Saturday.
All explosions have been preceded by cooling system breakdowns. Engineers are trying to prevent meltdowns by flooding the chambers of the nuclear reactors with sea water.
Japan's nuclear safety agency said it suspects Tuesday's blast may have damaged the vessel that holds reactor 2.
The BBC's Chris Hogg in Tokyo says that would make it a more serious incident than the previous explosions, which were thought just to have damaged the buildings that housed the reactors.
Meanwhile, five days after the tsunami triggered by the earthquake, the relief operation is continuing.
The latest official death toll stands at about 2,400 - but some estimates suggest 10,000 may have been killed.
Thousands are still unaccounted for - including hundreds of tourists - while many remote towns and villages have not been reached.
More than 500,000 people have been made homeless.
The government has deployed 100,000 troops to lead the aid effort.
The UK Foreign Office has updated its travel advice to warn against all non-essential travel to Tokyo and north-eastern Japan. British nationals and friends and relatives of those in Japan can contact the Foreign Office.
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