Witnesses told reporters the Sunday night blast injured several foreigners.
"It was caused by an explosive package placed behind the hotel," said central Baghdad police chief Ahmad Ilwi.
"Two Britons, two Nepalis and two Iraqi civilian security guards were very lightly injured."
US forces quickly cordoned off the area before the full extent of the damage could be assessed.
Mahdi Army fighting
Clashes erupted anew in the Shia al-Sadr City area of Baghdad on Sunday night between forces loyal to Shia leader Muqtada al-Sadr and US occupation forces.
A series of explosions were heard on the outskirts of Baghdad on Sunday night as US warplanes flew over the capital, witnesses said.
Earlier in the day, 19 Iraqi fighters were reported killed in four separate clashes around the capital.
US Brigadier General Mark Kimmitt said occupation forces confirmed the deaths of three Iraqi police, six civilians as well as 17 wounded.
He also said a "total of 19 enemy" were killed in clashes involving US forces and followers of al-Sadr.
Many civilians have been caught
in the crossfire
Eighteen of those were killed in al-Sadr City when US forces moved to break up checkpoints put up by his forces there.
And in central Baghdad, four men wearing the black of al-Sadr's Mahdi Army fired at police from the top of a building.
Seizing key players
The clashes followed an operation hours earlier when US forces seized two key players in al-Sadr's Mahdi Army, including a financier and a man responsible for eastern Baghdad operations, according to Kimmitt.
Fighting has gone on for days between al-Sadr's men and the US-led occupation in Baghdad and in southern Iraqi cities.
US forces are pursuing al-Sadr for the alleged murder of a rival leader last year.