The blast was heard at about 20:55 local time (16:55 GMT) and the shockwave rattled windows across the city.
No casualties were reported and police said they suspect the blast was caused by a roadside bomb.
The blast occurred outside a sports club belonging to the former Iraqi army.
The US military's Seargent Christopher Garabitos told news agency AFP the blast was caused when a homemade device detonated prematurely, adding that witnesses saw people leaving the scene in a car.
US troops were seen firing flares as they approached the area.
An Iraqi fire engine sprayed water onto a steaming crater beside a main road near the River Tigris.
Iraqi army lieutenant Akil al-Zubaidi also said it seemed to be
a "buried bomb." Smoke continued to billow out of the crater more than an hour later.
Several police and American soldiers were busy trying to keep crowds of Iraqis away from the site of the blast.
A taxi, which had been driving past, had its windscreen shattered but the driver said he had not been hurt.
Roadside bomb attacks are one of the most common methods
employed by guerrillas in Iraq to attack occupying troops.