A speeding car exploded near the police headquarters in Dura at 9:45am (0645 GMT), a police officer told reporters.
But the US military said the car, packed with about 135kg of explosives, blew up about 11am (0800 GMT) as an Iraqi police patrol passed.
All the dead were civilians, including a family of four travelling in a car in the immediate vicinity of the blast site.
An interior ministry spokesman had earlier said five policemen
and five Iraqi civilians were wounded.
The blast comes a day after two bombings killed four US contractors and six Iraqis in Baghdad's Green Zone on Thursday.
Party official killed
Also on Friday, a leading member of the Iraqi Islamic Party was killed when US forces opened fire at his car along the highway west of Baghdad, party sources said.
The scene of the explosion in the
Dura area on Friday
The sources said Nabil al-Abdalli, also a member of the local council for the Green Zone in Baghdad, was killed instantly.
The US army has not yet commented on the incident.
To the north of the capital, three Iraqi civilians were killed and seven others injured, among them women, when a US patrol fired at their cars in al-Kissik area near Tal Afar, north-east Iraq, sources told Aljazeera.
However, in a statement made to Aljazeera.net, the US military denied shooting at civilians and said they were responding to gun fire from the vehicles.
"The car was full of insurgents who were firing on US forces and we in turn responded to the attack," said Sergeant Lee Watts.