Police said the bomb was placed in a car parked next to the taxi station in the town just south of Baghdad on Sunday.
A day earlier, an Iraqi soldier was killed and seven other people were wounded when a car bomb attack occurred near a police checkpoint in the town.
The US military said two US soldiers were killed in a bomb and gunfire attack in Baghdad on Saturday.
"Two Task Force Baghdad soldiers were killed and two others wounded after a combined improvised explosive device and small arms attack in southeast Baghdad on 26 February," the military said.
The US military had also earlier announced a US marine was killed in action on Saturday in Babil governorate.
Town hall bombing
In Hammam al-Alil, 20km south of the main northern Iraqi city of Mosul, a bomb ripped through the town hall, killing at least five people and wounding three, security officials said.
The blast at 10.20am killed a guard, a worker and three civilians and wounded another three guards, said Major Abd al-Rahman Ali of the Iraqi facilities protection force.
Police chiefs in Najaf are feuding
over who is in control
"We don't know how the explosives were planted inside the building," he added.
The US military said there were eight dead and two wounded in the attack.
Also on Sunday, Iraqi police found the body of a headless woman in Baghdad, with a note attached denouncing her as a spy, security sources said.
"A police patrol found a headless woman with a note attached, denouncing her a spy," said policeman Walid Khalid.
The body was discovered at 8am in the western al-Adl district on the road leading out from the capital to the city of Falluja.
"A piece of paper, with the word spy written on it, was found
near the body of the woman dressed in a black robe," he said.
Najaf police feud
In Najaf, a feud has erupted over who is in charge of security in the sacred Shia city.
Police chief Ghalib al-Jazairy insists he is still boss even after Baghdad's Interior Ministry appointed Brigadier Abd al-Shahid Abd al-Razzaq to take over the post.
To add to the confusion, al-Jazairy's rage is vented not at al-Razzaq, but at Abd al-Aal al-Koufi, who he believes has been put in charge of overall security in Najaf by his rival, Najaf Governor Adnan al-Zurfi.
Some residents fear the feud will
destabilise the city
"Koufi took control of police stations and he detained four of my relatives who are senior police officers and he released the murderers suspected of killing my two sons," said al-Jazairy.
"He was following the orders of the Najaf governor. He is not a policeman and he has no rank. He is just a supporter of the governor," he said.
Al-Jazairy's sons, also police officers, were dragged off a bus and shot while protecting pilgrims travelling from Najaf to Kerbala during the Shia Ashura ritual about 10 days ago.
But the US-backed governor has accused Jazairy of stirring up problems.
"Al-Jazairy is trying to cause trouble and disobeying a decision of the ministry," said Zurfi.
Najaf, a spiritual capital of Shia around the world, is vital to the stability of Iraq, where a Shia political alliance won last month's election.
Some Najaf residents fear the crisis could invite trouble again after a period of relative stability.
"This will lead to disorder and problems inside the city. This could be exploited by terrorists who will enter the city again," said Sabah Muhammad, 28, a fabrics trader.
"This is rejected and the authorities must act quickly to end these problems to safeguard security."