"Many people were killed or wounded when a bomber blew himself up in the hall where the funeral service was being held," one witness said.
The bomber struck as mourners flocked into a hall adjacent to al-Sadrin mosque in the city's Tamim neighbourhood on Thursday.
Iraqi and US soldiers quickly surrounded the scene of the attack.
Mosul hospital doctor Sahir Mahir said US troops took 10 "very critical cases" to a military medical facility at their base in the city.
"As we were inside the mosque, we saw a ball of fire and heard a huge explosion," said Tahir Abd Allah Sultan, 45. "After that blood and pieces of flesh were scattered around the place," he added.
Stained in blood
Rows of overturned white plastic
chairs were stained in blood
The mosque, that was still under construction, is located in a poor Mosul neighbourhood and surrounded by many homes.
Rows of overturned white plastic chairs were stained in blood, which also pooled around the courtyard.
Body parts, believed to be of the bomber, were scattered around the area and the stench of gunpowder and blood clouded the yard.
Police chief killed
Earlier on Thursday, a Baghdad police chief was gunned down in an ambush in the capital's southwestern side that also killed two others, hospital sources said.
"We received the bodies of three policemen, including Lieutenant-Colonel Ahmad Ubaiss," a medic at Yarmuk hospital, who did not wish to be identified, said.
The Baghdad police chief is only
the latest in a long line of victims
Ubaiss was the chief of the Salhiya police station on the capital's west side, the source said.
Witnesses said armed men in vehicles opened fire on Ubaiss' convoy at 8am (0500 GMT) as it drove through Darwish Square in al-Saidiyah neighbourhood.
An hour earlier and in a nearby area, an Iraqi army patrol hit a roadside bomb, damaging a vehicle without causing casualties, according to army Captain Jabbar Amir.
Attacks against Iraq's fledgling security forces are a daily occurrence.
Two years on, security remains one of the main obstacles in getting the engine of rebuilding going and this was highlighted on Wednesday when a truck bomber rammed into the back of a hotel in Baghdad used by US contractors, injuring 30 of them, four of them seriously.
Muwaffaq al-Rubai, a member of Shia front-runner Ibrahim al-Jafari's bloc and current security adviser to the outgoing US-allied government of Iyad Allawi, said security would top the agenda of the new government while sounding confident that life was getting safer for Iraqis.
"We are progressing very well, security is much better than before"
Iraq government security adviser
"We are progressing very well, security is much better than before," he said on Tuesday, linking the ongoing violence to international terrorism and not the armed fighting, which he said was "finished".
"Terrorism is not only an Iraqi phenomenon ... it will take a few years to eradicate this malignant cancer," al-Rubai said.
In a separate development on Thursday, US forces surrounded Baiji town in northern Baghdad, Aljazeera learned.
Police said the action was taken after a US soldier was killed at the city's police station by unknown snipers.