"A booby-trapped ambulance driven by a human bomber blew up in a place where a wedding party was taking place," the police said.
Although 42 people were wounded, there were no immediate reports of deaths.
The car bomb outside the al-Taf mosque in southwestern Baghdad, however, left a bloodier trail.
The blast struck while Shia worshippers were celebrating one of Islam's most important holidays, the Eid al-Adha, or Feast of Sacrifice.
An Iraqi journalist, Ziyad al-Samarrai, told Aljazeera that many casualties had arrived at al-Yarmuk hospital.
He said the remains of some victims had not been identified. US forces arrived at the scene two hours later and sealed off the area, al-Samarrai said.
The blast's death toll is expected
Attacks on Shia Muslims have increased in the run-up to the 30 January national elections.
Senior Shia political leader Abd al-Aziz Hakim - whose list is expected to dominate the elections - said the attack was the latest salvo by extremists trying to stoke civil war between Shia and Sunnis.
"It is quite obvious why there is such an attack. They are
trying to create sectarian strife," Hakim said.
An audiotape released on Thursday and purportedly recorded by Abu Musab al-Zarqawi, al-Qaida's supremo in Iraq, took aim at the Shia community, accusing it of participating in the deadly November assault on Falluja.
"The battle of Falluja removed the ugly mask of the damned
Rafidha, whose hatred [for Sunnis] was manifested in this battle," the audiotape said. Rafidha is a derogatory term for Shia.
"They participated in the military campaign for the battle against Falluja with the blessing of the imam of infidelity and
apostasy, al-Sistani," it added.
Police station stormed
Separately, a dozen armed fighters stormed a police station north of Baghdad on Friday and blew it up, police said. No one was hurt in the attack.
Fighters burst into the station, which was nearly empty for Eid al-Adha, and placed explosives inside, said Iraqi police Captain Abd Allah al-Hiti. The blast destroyed the station in the centre of the town of Hit, about 165km northwest of Baghdad.
Iraqi police and US-trained security forces have been frequent targets for fighters who consider them enemy collaborators.