Hussain al-Haidari, an Iraqi journalist, told Aljazeera a booby-trapped Daewoo car exploded on Wednesday during a graduation ceremony at the police academy.
Babil district police spokesman Hadi Hatif said the bomber drove into the compound and came under fire from police before his car exploded.
He said at least four cars and three nearby buildings were hit by the blast.
The attack came a day after a truck bomb attack on a police commando headquarters in Baghdad killed at least 11 people.
Hilla is about 100km south of the capital.
Al-Haidari said Hilla is usually calmer than other areas in Babil district such as Latifiya and Iskandariya, where clashes with US and Iraqi forces regularly take place.
Fighters have been mounting near-daily attacks on Iraqi security forces in many parts of the country ahead of the planned 30 January elections.