Jordanian officials believe a missile was fired at the vehicle which was packed with explosives.
Eyewitnesses at the scene told our correspondent that they saw bodies burning and up to 18 people may have been killed in the blast.
Although the target appears to have been the embassy, this new development by resistance fighters has caused deep alarm among the US occupiers.
Elsewhere in the capital, a US Humvee vehicle was in flames after coming under attack north of Baghdad. Occupation troops at the scene exchanged fire with people in nearby buildings and at least one Iraqi bystander was killed.
The US military said that in an earlier gunbattle in the al-Rashid district of central Baghdad on Wednesday night, resistance fighters killed two US soldiers and wounded another, along with an Iraqi interpreter.
The blast outside the Jordanian embassy came a week after its government said asylum had been granted to Saddam Hussein's elder daughters Raghd and Rana. No group has claimed responsibility for the explosion.
Iraqi police Captain Ahmad Suleiman said four civilians were killed in a car caught in the blast and five policemen outside the complex also died. Dozens of people were wounded, including seven from inside the embassy.
Many innocent civilians
were hurt in the blast
Our correspondent quoting an Iraqi survivor said that a truck exploded in front of the embassy after a man ran out of it. “The explosion left a crater in the ground,” he said.
“After the explosion, chaos prevailed and a group of protesters entered the embassy and damaged property,” our correspondent said.
Jordan condemned the attack and pledged to bring the perpetrators to justice, whoever they were. "This is a cowardly terrorist attack that we condemn in the strongest terms. It will not divert us from our path of support and aid to the Iraqi people on the process of stabilisation," Information Minister Nabil al-Sharif said in Amman.
“After the explosion, chaos prevailed and a group of protesters entered the embassy and damaged its property.” - Aljazeera correspondent at the blast site in Baghdad
He said there were no reports about any embassy staff being killed, but some might have been wounded. The charge d'affaires, Damay Haddad, was not in the compound at the time.
In Saddam Hussein's home town of Tikrit, north of Baghdad, a US commander said four high-level suspects were captured including a leader of Saddam Hussein’s Fedayeen militia in Tikrit, and two associates of the former president's son Uday in Kirkuk.
Saddam on run
Major General Ray Odierno, commander of the 4th Infantry Division, referring to Saddam Hussein said, “He's on the run. He's moving every three to four hours. Every day we get four or five reports that he could be anywhere from Kirkuk to Baquba to Tikrit."
Citing intelligence data, Odierno said, "He is clearly moving three to four times every single day... On some of the raids we've done there are indications that somebody's been moving through there. And somebody extremely important."
He said, "My guess is he's in disguise some way, he's moving around in unassuming clothes and vehicles."