US soldiers later joined the fight, aiding in a counter-attack that left 18 fighters dead, the US military said on Friday.
Police fought back and US soldiers nearby were diverted from another mission, assisted by air cover.
One Iraqi civilian was also killed, eight fighters wounded, and 27 others captured, the military said.
The Iraqi police unit was based in Baquba, 60km northeast of Baghdad. The ambush took place at 6.30am local time (0330 GMT) on Thursday.
Also on Friday, US forces ventured into the Baghdad stronghold of Mahdi Army leader, Shia cleric Moqtada al-Sadr, searching for a kidnapped US soldier, two days after another raid in the area stoked tensions with the Iraqi government.
Iraq's interior ministry, which commands the police, gave a slightly different version of Thursday's clash in north Baghdad, and said those killed included Abbas Al-Ameri, a police chief, and his brother.
Abdel-Karim Khalaf, a ministry spokesman, said forces moved into the area after learned of the presence of fighters who were behind the ambush on Monday of a convoy of buses carrying police recruits in which at least 15 were killed 25 wounded.
Khalf denied police had been surprised and put the death toll among officers at 12, with 19 fighters killed and 28 captured.
Sadr City is witnessing clashes
between Shia fighters and police
He described the enemy fighters as hardcore remnants of Saddam Hussein's former Baathist government joined by "Takfiri elements", a term for Islamic radicals that include groups such as al-Qaeda in Iraq.
The area around Baquba has seen heavy fighting in recent weeks between armed Shia and Sunni groups carrying out brutal revenge killings.
Bloodshed in Mosul
Meanwhile, four people were killed and five wounded in an attack on a van carrying Shias returning from the funeral of a relative in the city of Najaf, said a spokesman for the police force in surrounding Diyala province.
Fearing similar bloodshed, authorities enforced a vehicle ban in Mosul on Friday following threats from Sunni fighters who distributed leaflets at mosques on Thursday proclaiming the mixed Sunni-Kurdish city a part of an Islamic state declared earlier this month by an insurgent umbrella group, the Mujahidin Shura Council.
While the fighters declaration has been viewed primarily as a propaganda move, fighters aligned with the Shura Council have been suspected in recent deadly attacks in Mosul.
The city is a battleground between Sunni Arabs relocated there by the Saddam government and members of the Kurdish minority native to the region.
Sadr City clash
In other news, witnesses and two officials of the Mahdi Army said there was a strong US troop presence backed by air support in the northeast part of Sadr City on Friday. They reported clashes in the area but it was not immediately clear who was involved.
"It's ongoing operations specifically related to the search for the missing soldier," said US Lieutenant-Colonel Christopher Garver.
Al-Maliki on Thursday said Iraq's most notorious death squad leader had escaped a major US-led raid in Sadr City which the Americans said killed 10 "enemy fighters".
Wednesday's ground and air assault targeted Abu Deraa, a feared warlord held responsible for a rash of brutal sectarian killings and kidnappings of Iraqi Sunnis.
The Wednesday raid also targeted a mosque in connection with the hunt for the missing US soldier, who left the safety of the fortified Green Zone on Monday to visit a relative.
In another development, al-Sadr has threatened rogue commanders in his Mahdi Army militia with the wrath of God, his principal mouthpiece told worshippers at prayer on Friday.
Al-Sadr's calls for restraint have
fallen on deaf ears
In recent weeks armed groups claiming allegiance to al-Sadr's movement have fought pitched battles with Iraqi security forces in two southern towns, Diwaniyah and Amara, despite calls from al-Sadr for restraint.
"This disobedience to the leadership has divided us and earned us multiple enemies," declared Sheikh Jaber al-Khafaji, the preacher who speaks for al-Sadr at the mosque in the central Iraqi town of Kufa.
"The directives of Moqtada al-Sadr in his speach during Eid prayers should not go unnoticed," he added, referring to the latest of al-Sadr's recent attempts to rein in his movement's more unruly cadres.
"If you do not obey, you will regret it. Indeed, I declare that you will be cursed. Sayid Moqtada al-Sadr is a blessing from God upon you and is your protector," Khafaji told the large crowd in this Shia area.