The bomb exploded at lunchtime on Monday outside the Habaybna restaurant, which is located inside a three-storey building in Talibia.
Several cars parked on the street were set ablaze and bodies could be seen on the street. The blast was believed to have been set off by remote control.
The bombing came on another day of violence in Iraq after fighters opposed to the presence of foreign troops in Iraq targeted two US bases, a leading political aide and a Kurdish leader, leaving several people dead and many more injured.
The deadliest incident took place south of Kirkuk, when a car bomb exploded near the convoy of a Kurdish official in Tuz Khurmatu, killing at least five people and wounding 18 others, police said.
A top aide to Jaafari was
assassinated in Baghdad
Muhammed Mahmoud Jigareti, of the Patriotic Union of Kurdistan, and several others in the convoy were hurt in the blast.
Al-Jaafari aide assassinated
Meanwhile, two carloads of armed men assassinated a top aide to Iraqi Prime Minister Ibrahim al-Jaafari and his driver in Baghdad, police said.
Wael al-Rubaei was attacked in the main street in central Baghdad's Mansour district at about 8.15am (local time) as they were heading to work, said police Lieutenant Majid Zaki.
Zaki said two carloads of armed men sprayed automatic weapons fire at al-Rubaei's vehicle, killing the official and his driver.
The slaying follows Sunday's killing of another senior government official, Trade Ministry auditing office chief Ali Moussa.
State employees have been prime targets of fighters trying to disrupt the US-backed Iraqi government.
Earlier on Monday morning, three bombers attacked an American military base in Mosul wounding three US soldiers, and killing two Iraqis, the military said.
And in downtown Samarra, two bombers detonated car bombs at about 7am (local time) outside the US base, 95km north of Baghdad, Major Richard Goldenberg said.
Three bombers attacked a US
base in Mosul
Three Task Force Liberty soldiers sustained non life-threatening wounds, Goldenberg added. The Associated Press put the number of injured people at 23.
A third man approached the scene wearing an explosives-packed vest and was shot by soldiers, but still managed to set off his bomb, killing himself but causing no other injuries or damage, Goldenberg said.
US and Iraqi security forces quickly cordoned off the area, blocking all vehicle and pedestrian traffic.
Separately, a bomber injured four Iraqi civilians in a Sunday attack in a neighbourhood in Mosul, 360km northwest of Baghdad, the US military said in a statement.
Speaking to Aljazeera from Baghdad, the secretary-general of an Iraqi political movement known as the Gathering for the Sake of Iraq, Raad Mawloud Mukkhlis, urged a national dialogue and warned the government could collapse unless security is established.
"Iraq has become an open arena for groups from inside and outside to settle their differences at the expense of Iraqis," Mukkhlis said.
"We are in a real state of warfare"
Raad Mawloud Mukkhlis,
Gathering for the Sake of Iraq
He said an Iraqi dialogue modelled after those of South Africa and Lebanon would reduce the level of violence.
"We are in a real state of warfare which has not finished yet," Mukkhlis said, accusing the former interim government and the US occupation forces of being responsible for the deterioration of security.
"If the new government adopts the same approach as the former government, it will certainly collapse," he said.