Karbala is 80km south of Baghdad and thousands of Shia pilgrims are flocking to the city to mark the festivities surrounding the commemoration of the death of Imam Hussein, the grandson of the Prophet Muhammad.
Brigadier General Vincent Brooks, deputy commander for Multi-National Division-Baghdad, said Iraqi officials and security forces as well as US troops were present when the attack took place.
Helicopter crash
Meanwhile, thirteen US troops died after their helicopter crashed northeast of Baghdad on Saturday, a military spokeswoman has said.
"A military helicopter went down in the afternoon today northeast of Baghdad with 13 troops on board," Lieutenant Colonel Josslyn L Aberle said on Saturday evening.
Other crashes
The crash came less than two months after a Sea Knight helicopter went down in the western Sunni Anbar province on December 3.
Four of the 16 military personnel on board were killed in the crash which occurred on the shore of Qadisiyah lake.
The worst US helicopter crash of the Iraq war was on November 15, 2003 and killed 17 soldiers when two UH-60 Blackhawks crashed west of Mosul in northern Iraq.
Two weeks earlier 16 US soldiers died when their CH-47 Chinook was shot down by a ground-to-air missile near Fallujah in Anbar province.
US deaths
In other incidents during the day, at least 20 Iraqis were killed in a string of attacks, including three when several mortars were fired at a Sunni district of Baghdad, security sources said.
Police also recovered 29 corpses of men shot dead in Baghdad, a security official said.