The blast occurred at around 7am on Wednesday alongside a group of Iraqi men waiting for work near the Sunni Muslim al-Samaraai mosque in the New Baghdad area of the city.
Ahmad Abbud, chief of police in the area, said witnesses apparently saw a man place a bag full of explosives near a cart that sold tea to men waiting near a crowded intersection for a day's work.
He said: "The people did not suspect him when he first came with the bag because all workers carry their food in such bags."
Abbud and another police official, Captain Muhammad Jasim Jabir, said at least eight people were killed and more than 50 wounded.
It was unclear why the workers were targeted, and the officials said there were no security forces near the scene of the bombing.
The explosion happened hours before the scheduled resumption of the trial of Saddam Hussein, but there was no immediate evidence the two events were linked.
Elsewhere on Wednesday, police reported that a roadside bomb blast missed a US patrol but killed one civilian and wounded two others in the town of Amiriya, 40km west of Baghdad.
Another roadside bomb exploded in central Baquba, northeast of the capital, killing one civilian and wounding three others.
Two Iraqi journalists from a privately owned local TV station were abducted in Baghdad on Wednesday after a press conference held by a Sunni Arab political party, police and a station employee said.
Marwan Ghazal and Reem Zaid, from Sumaria TV, were abducted by armed men in western Baghdad's al-Yarmouk district following a meeting held at the Iraqi Islamic Party's headquarters, said station cameraman Adel Naji.
Two TV cameramen with the journalists were released by the abductors, Naji said.
The blast struck an area near
a crowded intersection
Police Lieutenant Maitham Abdul-Razzaq said six gunmen in two cars blocked the reporters' car as they tried to leave the area and kidnapped them at gun point.
There have been no demands made by the kidnappers for the journalists' release as yet.
Serious hindranceThe violence is clouding ongoing negotiations to form a new unified national government comprising Iraq's Shia, Kurdish and Sunni Arab communities.
The US is backing efforts for the government to include the Sunni Arabs.
Prime Minister Ibrahim al-Jafaari's office said in a statement on Wednesday that the prime minister had met the regional president of Kurdistan, Massoud Barzani, as part of efforts to form a national unity government.
Al-Jaafari is one of four Shia politicians being touted as the next prime minister, who will have the difficult task of forming a cabinet.
Meanwhile, US troops fired on a Canadian diplomatic vehicle that failed to obey signals by the military forces to stop in Baghdad on Tuesday, but there were no casualties, a military spokesman said.
A spokeswoman at the Canadian Embassy in neighbouring Jordan said four Canadian diplomats, including the acting ambassador, were travelling in one vehicle when the incident happened.
"We are aware of this incident and the American and Canadian authorities are looking into it," she said.
The incident happened inside the heavily fortified Green Zone - which is the base of numerous foreign missions and the Iraqi government - after the troops signaled to a "convoy" approaching them to stop.