Wednesday's attack occurred on a main road near a market around midday (0900 GMT), an interior ministry official said.
Police said the bomb was targeting a police patrol.
Major Falah al-Muhammadawi, a spokesman for the ministry which oversees police, said an explosive hidden under a car detonated around 10.40am near al-Tahrir Square.
The Iraqi capital has suffered a surge of violence since the 22 February bombing of a Shia shrine in Samarra, which triggered reprisal attacks against Sunnis.
At least 68 people were killed on Tuesday in bombings and mortar fire against mainly religious targets in the city.
Meanwhile, the trial of Saddam Hussein and seven other aides on charges of crimes against humanity has resumed.
All the defendants and defence lawyers were present, except Saddam's lead lawyer Khalil al-Dulaimi.
Khamis al-Ubaidi, the other lawyer who had left Tuesday's session with al-Dulaimi was back in the court, an AFP correspondent said.
Also on Wednesday, Bernard Bajolet, the French ambassador to Iraq, met officials from Muqtada al-Sadr's movement.
The meeting included Abd al-Hadi al-Daraji, al-Sadr's chief representative in Baghdad, and Abdul-Kazim al-Suaidi, a senior official.
It took place at al-Sadr's headquarters in the capital.
Shia officials said the first topic of the meeting was the controversy over cartoons of Prophet Muhammad. Efforts to calm Sunni-Shia tensions also came up.
Al-Sadr's movement is part of the United Iraqi Alliance, a coalition of Shia religious parties which controls 130 of the 275 seats in parliament.