Thursday's hit on the train carrying petroleum products was the first such attack in Iraq, railway spokesman Jawad al-Kharsan said.
The explosion ignited a massive blaze extending down the railway line in southern Baghdad and killed an Iraqi soldier. Four others, including a civilian, were injured in the blast.
The five-man train crew, however, escaped unhurt, railway officials said.
The seven-tanker convoy was attacked less than a kilometre away from the Dura oil refinery.
An Interior Ministry official said the train struck a bomb on the line, but railway workers said the explosion could also have been caused by a rocket-propelled grenade.
In a separate incident on the Syrian border, US fighter jets bombarded the Iraqi village of Haditha, 220km northwest of Baghdad, the military said.
Laser-guided missiles and other ordnance were used in the air strike, killing nine alleged fighters - five of them Syrians, according to the US military.
Railway officials said the oil train
hit was the first such attack
The air strike was apparently launched after US and Iraqi troops came under fire from three buildings in the village, the military said.
Fighter jets dropped four bombs on buildings, destroying all three of them, the statement added.
Two suspects were arrested, the statement added.
In other incidents, Aljazeera learned that six Iraqi soldiers were killed and eight wounded during an attack by fighters against two Iraqi army checkpoints south of Baquba.
Four soldiers and a police officer were killed in attacks in the Samarra area north of the capital, police said.
US forces were attacked by rocket-propelled grenades in central Falluja, resulting in damage to a hotel building.
And the US military said on Thursday that two of its soldiers were killed and one wounded when a bomb went off on Wednesday in north Baghdad.
The deaths brought the total number of US military personnel who have died in Iraq since the March 2003 invasion to 1784, according to an AFP tally based on Pentagon figures.
"An unending military presence will waste lives and resources, undermine our nation's security and weaken our military"
Meanwhile in the United States the American Federation of Labour (AFL) and the Congress of Industrial Organisations (CIO), the largest US union movement, called for the rapid return of US troops from Iraq.
"An unending military presence will waste lives and resources, undermine our nation's security and weaken our military," the AFL-CIO stated in a resolution adopted at the federation's convention in Chicago.
The federation, which has nearly 11 million members, also blasted President George Bush for misleading the public about the war.