Officials said nearby hospitals were being flooded with victims from the blast.
 
The blast occurred at 4.40pm as the market was crowded with people buying food for their evening meal.
 
 "It was a terrible scene. Many shops and houses were destroyed," said one resident, Jassem, 42, who had rushed from his home nearby to help pull people from the rubble after hearing the ear-splitting explosion.
 
The bombing was the latest in a series of attacks against commercial targets in the capital as anti-government fighters seek to maximise the number of people killed before a planned US-Iraqi security sweep.
 
Kirkuk violence
 
In the northern city of Kirkuk, four car bombings - one of which was a suicide attack - killed at least four civilians and wounded 37.
 
Two of the cars detonated outside the offices of the main Kurdish parties in the city.
 
A police source said the authorities had banned vehicles from the roads and sealed all entrances to Kirkuk to prevent more car bombings.
 
In Iraq's north-west, another curfew was imposed in Mosul, Iraq's third largest city, after clashes between anti-government fighters and police erupted in several neighbourhoods.
 
Violence continued in Mosul despite the curfew. A car bomb hit an ambulance and killed an injured woman who was being taken to hospital and six mortar bombs struck the offices of the state-funded Iraqiya television channel.
 
Earlier in the day, a curfew had also been imposed on Samarra after six police commandos were killed when a police checkpoint just north of the city was attacked by armed men.
 
Al-Qaeda strategy
 
An Iraqi Sunni fighters' group tied to al-Qaeda in Iraq have announced it has launched a new fighting strategy to encompass areas in Iraq beyond Baghdad.
 
The audiotape, posted on Saturday on a website commonly used by group, purportedly bears the voice of Abu Abdullah Rashid al-Baghdadi, also known as Abu Omar al-Baghdadi, the head of The Mujahidin Shura Council.
 
In the 22-minute tape, al-Baghdadi said his new operation, dubbed Dignity, would counter George W Bush's plan to send 21,500 more troops to join the estimated 130,000 already in Iraq.
 
"They have announced their new-old plan," al-Baghdadi said.
 
 "We bring our Sunni people the good news of a plan ... wider and firmer with the power of God, that will not only include Baghdad, but all the areas inside the Islamic state."
 
Calls for calm
 
Earlier on Saturday, in the Shia theological centre of Najaf, Iraq's top Shia cleric, the Ayatollah Ali al-Sistani, repeated his calls for calm.
 
"The Islamic nation is passing through difficult conditions and facing tremendous challenges that threaten its future," his new fatwa, or religious edict, said.
 
"Everybody knows the necessity for us to stand together and reject the sectarian tension to avoid stirring sectarian differences."