Four other people who had been taken from the bus station in Muqdadiyah – about 90km northeast of Baghdad - on Wednesday were rescued, according to an Iraqi army commander.

There are conflicting reports about the victims' identities.

Major General Ahmed al-Awad, commander of the Iraqi army's 5th division in the area, said the victims were Shia bus drivers.

Relatives at the morgue in Baquba said that Shias and Sunnis had been killed.

The general said the gunmen had separated the Shia captives from the Sunnis and taken the Shia victims to the nearby village of Ballour. He accused local police forces in the town of failing to intervene.

"After receiving information, an army force consisting of 352 fighters with 24 vehicles went to raid the village of Ballour. Four of the kidnapped were released," al-Awad said.

The bodies were found blindfolded and bound in an orchard.

An Iraqi military operation to reduce insurgent activity was recently carried out in Muqdadiyah.

The Sunni Iraqi Islamic Party said last week that US and Iraqi troops had surrounded 15 mostly Sunni villages near the town.

In Baghdad, at least eight people were killed when a suicide bomber blew himself up at a restaurant in a mixed neighbourhood in the southeast of the city. Thirty people were also wounded in the attack.