Police said the bodies were found near Badra town in Wasit province, 110km southeast of Baghdad, on Thursday.
They were taken to a local mortuary and then transported to the capital Baghdad where many of the victims had apparently lived, police said.
Family members chanting "there is no God but God" picked up some of the bodies on Friday, taking them home in flag-draped coffins. Some family members said their relatives had been abducted from their homes almost three months ago.
One old woman walked along the street nearby screaming: "Where's my brother, where's my brother?"
According to relatives and neighbours, the slain were Sunni Arabs, rounded up from their Baghdad homes one night by men in police uniforms.
They accused government-linked Shia death squads for the spate of corpses that turn up nearly every day in and around the capital.
Some Sunni leaders have accused Shia militia of carrying out revenge attacks against Sunnis.
Police said shepherds in Wasit discovered the bodies in an area between Badra and the neighbouring town of Jasim and
alerted local police.
Elsewhere in Iraq, a member of the Hawija city council was shot dead by armed men near the northern oil city of Kirkuk.
Colonel Serhat Kadir said Abd al-Majid Ahmad was attacked as he was driving to Kirkuk from Hawija, about 70km to the southwest.
Also in Kirkuk, a child was killed and five people in the same family were wounded when a mortar round targeting a US base landed on their house in the Iraqi village of Riyadh, 60km southwest of Kirkuk, police said.
Mussa warned that Iraq was on
the verge of civil war
A roadside bomb blew up near a US military patrol in Abu Ghraib, west of Baghdad, the Iraqi police said.
They said there were casualties, but the US military had no immediate information on the attack. Police officer Karim Salim said US forces cordoned off the area and detained 16 suspects after the attack.
Police said 10 mortar rounds landed near a US military base at Habaniya, near Falluja, 50km west of Baghdad.
US forces returned fire, killing three people, medics said.
The US military had no immediate information about the incident.
Civil war warning
Iraq is on the brink of civil war, Arab League Secretary-General Amr Mussa said on Saturday, a week before the country holds a landmark referendum on a draft constitution.
"The situation is so tense there is a threat looming in the air about civil war that could erupt at any moment, although some people would say that it is already there," Mussa told BBC radio.
"We can't just leave Iraq with the divisions and disagreements and conflicts and shootings," he warned.
Many of the victims appeared
to be Sunni Arabs
Arab League diplomats are due in Iraq soon to prepare for a reconciliation conference, bringing all factions together.
"I am not accusing any particular party" for the continuing violence in Iraq, added Mussa.
"Each of them is being encouraged to grab whatever they can grab. There are a lot of individuals, a lot of interests now that are playing games with the future of Iraq and there is no clear strategy, there is no clear leadership," he said.
"Now we have to say 'Stop. What are you doing? Where are you going?'"