"There were Iraqi civilians that were killed that were waiting in line," Colonel John Murray told reporters on Thursday, adding that the bomb had "very seriously wounded" at least three US soldiers.
The explosion left several cars ablaze at the entrance to the sprawling headquarters of the US-led occupation in Iraq, according to witnesses.
"We saw a car on fire. We think it was a car bomb. There were two bodies covered in sheets," said Muhammad Talum, who lives close to the 14th of July Bridge, the entrance to the heavily-fortified headquarters, nicknamed the Green Zone.
The army believed the blast was caused by a car bomb, but said it was not clear if anyone had been in the vehicle. "Initial reports were of a vehicle-borne explosive device," the official said.
The huge blast occurred just after 7:00 am (0300 GMT) on Thursday as civilians were queuing in their cars to enter the 14th of July Bridge, used only by the military and employees of the US-led occupation authority.
"We saw a car on fire. We think it was a car bomb. There were two bodies covered in sheets"
Flames engulfed several cars in the queue on the heavily-fortified bridge, which is protected by Iraqi security forces and the US military as well as cement barriers.
Soldiers in armoured humvees and police roped off the area as the inferno belched black smoke.
The powerful blast rattled windows in the neighbouring eastern Karrada neighborhood.
The last major car bomb in Baghdad hit the Mount Lebanon Hotel in mid-March.
There have been more than 30 major bombings in Iraq since last July after the US-led occupation ousted Saddam Hussein.
US officials have warned of "big-bang" attacks as the 30 June date for the end of the occupation approaches.
The blast came ahead of the imminent arrival in Iraq of UN envoy Al-akhdar al-Ibrahimi, tasked by the US with supervising the selection of an interim Iraqi government.