The Baghdad attack was followed by a suicide bombing outside a police station in Kirkuk which killed at least three people, including one child and two officers, and wounded 11 others.
Brigadier-General Abd al-Karim Khalaf, an Iraqi interior ministry spokesman, said the toll from the Sadr City blast was provisional and the number was expected to rise.
The bomb, hidden in a roadside rubbish bin, was triggered at about 7.30am (0430 GMT) as workers waited for employment, according to another security source.
There was no initial word on who might have planted the device.
Sadr City is a poor Shia area in eastern Baghdad and a base for al-Mahdi Army, the militia loyal to Muqtada al-Sadr.
The district is currently surrounded by a cordon of US troops searching for an abducted American soldier.
Also on Monday, an Iraqi academic and Sunni political activist was shot and killed as he left his Baghdad home, police said.
Three men escaped in a car after shooting Isam al-Rawi, head of the University Professor's Union and a senior member of the influential Association of Muslim Scholars, according to a police officer.
The Muslim Scholars Association is a Sunni organisation believed to have links to fighters opposed to the US presence in Iraq and the government.
The group has boycotted elections and stood aside from Iraq's political process.
An association official said al-Rawi was in his car, accompanied by two bodyguards, when the men forced it to stop. They then sprayed the car with bullets.
One of al-Rawi's bodyguards was killed and the other injured, the official said.