Police sources said the bomb went off at about 9am (0600 GMT) on Saturday close to the Iraqi central bank on Rashid Street, one of the capital's most crowded areas.
It was not immediately clear who was the target of the attack.
Also on Saturday, a roadside bomb detonated near a US tank patrol north of Baghdad, killing a US soldier, the army said.
A statement from the 1st Infantry Division said the blast occurred near the town of Duluiya, 90km north of Baghdad, shortly after dawn.
Aljazeera has also learned that a bomb exploded on the main road leading to Baghdad airport as a US military convoy passed by.
Iraqi journalist Muhammad al-Samarrai told Aljazeera that clashes later erupted between fighters opposed to the US-led interim government and US-led forces in al-Ghazaliya districts.
Clashes have erupted between American forces and anti-US fighters in al-Khalis in the province of Diyala, north of the capital.
An official for the Islamic Party in al-Khalis city, Husayn al-Zubaidi, told Aljazeera: "We heard gun shots and artillery in the early morning.
The American casualty toll is
"Resistance elements controlled, the area for some time, the city but the US and the Iraqi civil defence got them out."
The official said clashes were continuing and that US forces had surrounded and cordoned off the area.
Al-Zubaidi said two US vehicles were seen on fire.
In other violence, an official in the Iraqi Communist Party was assassinated, a party spokesman confirmed on Saturday.
Munir Jabbar was returning home late on Friday when unknown gunmen opened fire on him in the town of Buhriz, about 55km northeast of Baghdad, according to the party official in Baquba who identified himself as Abu Adil.
Jabbar was the head of a committee responsible of coordinating with other political parties in Diyala province.
Two weeks ago, a prominent Communist Party official was shot and killed with two of his bodyguards north of Baghdad.
Iraq's Communist Party, which was banned under Saddam Hussein's rule, cooperated closely with the US occupation authorities and is now part of the interim government of interim Prime Minister Iyad Allawi. Culture Minister Mufid al-Jazairi is a party member.
US forces discovered 17 more bodies in the northern Iraqi city of Mosul, a US military spokesman said, raising to more than 50 the number found in the city in the past two weeks.
Lieutenant-Colonel Paul Hastings, spokesman for US forces in north Iraq, said the bodies were found in various locations in western Mosul, which has seen the bulk of violence since anti-US forces stepped up their campaign in mid-November.
US forces have so far discovered
at least 50 bodies in Mosul alone
"The bodies haven't been identified yet, but it all appears to be part of the same campaign of violence and intimidation," Hastings said.
Since anti-US fighters launched an offensive against American troops and Iraqi security forces in the city on 10-11 November, at least 50 bodies have been found in Mosul and the nearby town of Tal Afar, according to US military commanders.
Many of them were shot through the head and dumped by the side of the road, while others were mutilated and in some cases decapitated. At least some of the killings have been claimed by a group allied to al-Qaida-linked Abu Musab al-Zarqawi.
At least a dozen were members of the Iraqi army and national guard, which have been working with US forces to try to restore order in Mosul, Iraq's third largest city.