Police at the scene of Thursday’s attack said the rocket had skidded along the ground after the initial impact, hitting a car and killing its occupants. Another two people were injured.
As a crowd gathered around the mangled remains of the vehicle, people began chanting anti-US slogans, saying “America is the enemy of God”.
Anti-US sentiment has been running high in Iraq since a series of anti-Shia attacks killed around 200 civilians in the holy city of Karbala and Baghdad on Tuesday during ceremonies commemorating Ashura.
It was the worst attacks since the fall of Iraqi leader Saddam Hussein.
As Iraqis entered their second official day of mourning, the head of the Iraqi Governing Council said on Thursday the country's US-led occupiers must do more to provide security.
The comments by Muhammad Bahr al-Ulum, a Shia cleric and current president of the US-appointed Council, underlined friction between Shia leaders and occupying forces after the deadly attacks.
Iraq's leading Shia authority Ayat Allah Ali al-Sistani, has blamed US forces for failing to secure Iraq's borders. Another Council member said the attacks showed Iraqi militias should be in charge of security.
IGC president Mohammad Bahr
al-Ulum visited the wounded
But the top US commander in Iraq said he opposed the formation of Shia militias in response to the devastating attacks in Karbala and Baghdad, warning that it would be a "destabilising event."
General John Abizaid's comments before the Senate Armed Services Committee came in response to reports of rising demands by Shia to protect their communities with militias tied to political parties in the face of escalating attacks targeting civilians.
"It would be a destabilising event, because it would give the impression that ethnic militias are standing up, and it creates the impression they are standing up for other than strictly defensive measures," he said.
Meanwhile, police arrested a Sudanese man Thursday in connection with an unspecified attack and fired shots in the air to ward off an approaching crowd in Karbala, said Police Captain Namal Abu al-Amr.
"We were watching him for several days. He was holding a walky talky…We thought he might be up to no good,” he said.
Police fired the shots to disperse the large crowd that gathered around when they arrested the man, who was not identified, near the Abbas Shia mosque.
The crowd, estimated to be at least 500-strong, stampeded across the plaza after about 10 shots were fired.
Earlier, police in Karbala accused the interior ministry of failing to meet a request for more weapons and radio equipment ahead of Ashura.
A deputy police chief and a senior judge in Karbala said
the request had been made before the holy day, as all sides
anticipated that attacks might be launched on the city as millions of pilgrims descended there.
In related news, an Iraqi police officer was killed and two others seriously wounded in the northern city of Kirkuk when their patrol came under attack.
"Unknown attackers travelling in a car opened fired on the patrol in the east of the city, killing a police officer and wounding two others," said General Turhan Yusif.
There have been mounting tensions in Kirkuk, a hotbed of ethnic tensions between the Arab, Kurdish and Turkmen communities.
And in the city of Mosul assailants attacked a police station and mosque with mortars and rifles, wounding at least two policemen and two civilians, before fleeing, said police and witnesses.