Firemen were on the scene trying to bring the blaze under control on Friday evening, he said.
"This is a major fire because the mortar fell on the petrol refining area. There are probably many victims. Many ambulances have arrived on the scene," said civil defence spokesman Kazem Bashir Salem.
"Everyone is mobilised. We have sent firemen from 13 stations in Karkh and those in Rasafa are on alert," he said. Karkh is on the west bank of the Tigris in Baghdad and Rasafa the east.
The Dura refinery supplies Baghdad with most of its petrol needs, while fighters have repeatedly targeted Iraq's vital oil infrastructure in the hope of preventing the country's economic recovery.
Earlier on Friday, Italy announced its plans to begin withdrawing some of its troops from Iraq in September, Premier Silvio Berlusconi said.
"We will begin withdrawing 300 men in the month of September," said Berlusconi, who has come under increasing pressure in Italy over his support for US-led forces in Iraq.
However, Berlusconi - speaking at the end of the G8 summit - added that any withdrawal plans would depend on security conditions on the ground and could change.
He said the partial pullout would not compromise security for the remaining Italian troops or the zone of southern Iraq under their control.
Berlusconi denied a withdrawal was linked to any threats against Italy, although he said he was not underestimating the potential danger.
Berlusconi, a staunch ally of US President George Bush, sent 3000 troops to Iraq after the ousting of Saddam Hussein to help rebuild the country. The contingent is based in the southern Iraqi city of Nasiriyah.
In recent months, Italian officials have gone back and forth on when a withdrawal might begin.
Berlusconi had said September was a possibility, but Foreign Minister Gianfranco Fini then talked of early 2006.
On Friday, Berlusconi said he has spoken several times to Bush and British Prime Minister Tony Blair about starting to withdraw Italy's contingent as Iraqi security forces become increasingly capable of securing the territory.
Iraq "must come to a point where it must guarantee its own security," the Italian leader said.
Berlusconi is a staunch US ally
Relations between Washington and Rome have been strained in recent months - first by the killing of an Italian intelligence agent by American soldiers in Iraq, and then by arrest warrants issued by an Italian court that is accusing 13 purported CIA operatives of kidnapping an Egyptian cleric from Italy and sending him to Egypt.
Pressure on Berlusconi has been mounting, even from within his own conservative coalition.
Reforms Minister Roberto Calderoli of the right-wing Northern League party said on Friday the time had come for the United Nations to begin discussing "the progressive withdrawal of troops, beginning with our contingent, perhaps by September".
"It's evident that after New York, Madrid and London, Italy represents the most probable next objective of the terrorists," he said. "The time has come to begin to think also about our house, and to use the same resources currently committed in Iraq to prevent and combat possible attacks on our territory."
Berlusconi said Italy is a potential target, but added: "It could happen to us as it could happen to another country."
Berlusconi indicated that the intention to start pulling the troops out was not the consequence of threats against Italy or himself that appeared recently on the internet, saying that he had "grown used to them, even though I do not underestimate these threats".
"It's evident that after New York, Madrid and London, Italy represents the most probable next objective of the terrorists"
A group calling itself The Secret Organisation of al-Qaida in Europe - which claimed responsibility for Thursday's bombings in London - said the attacks were a punishment for British involvement in the US-led wars in Iraq and Afghanistan.
The statement also said Italy and Denmark would be attacked for their support of the US-led coalitions in both countries.
Egypt mission cut
Meanwhile, Egypt said on Friday it will cut staff at its mission in Baghdad after its top diplomat was killed.
Egyptian Foreign Minister Ahmed Aboul Gheit said the reduction was to protect staff at the mission after al-Qaida in Iraq said it had killed top envoy Ihab el-Sherif.
But Iraq's Foreign Ministry appealled to Arab and Muslim countries not to be swayed by the kidnapping and killing of al-Sherif, which it said was meant to deter them from upgrading their diplomatic missions in Iraq.
Ihab el-Sherif was abducted
while walking alone in Baghdad
"Arab and Islamic countries are asked to prove their seriousness in combating terrorism and send their ambassadors to Baghdad so they send the right message to the terrorists," the ministry said in a statement.
Jalal Talabani, Iraq's president, has promised top security for diplomats and Interior Minister Bayan Jabor, who has chided envoys for travelling without protection, said Iraqi armed escorts were always available.
Police were hunting al-Sherif's killers, a day after Cairo confirmed his death. He had been snatched off a Baghdad street on Saturday.
Also on Friday, Aljazeera reported that car bomber had attacked an Iraqi military patrol on the eastern entrance of Falluja city.
Smoke was seen rising from the site of the attack and gun shots were heard, but the number of casualties among Iraqi troops, if any, is not known.