The US command in northern Iraq said it was investigating the incident but has not yet confirmed that chlorine gas was used in the bomb.
Brigadier-General Abd al-Karim Khalaf, Iraq's interior ministry operations director, said there had been an explosion followed by two mortar attacks on Abu Saydah.
He did not give an official toll.
Most of the wounded were treated at hospitals in nearby Muqdadiya and Baghdad's Sadr City, the main Shia district of the capital.
"Let the people of Iraq vote if they want the US to stay or leave"
Bob Kaye, Bohemia, US
Send us your viewsKadim Hussein, a 45-year-old farmer who was taken to the Imam Ali hospital in Sadr City, said the hospitals in Baquba would accept only Sunnis.
"My eyes became puffy due the chlorine gas that was packed in the car bomb... Also I had many pieces of shrapnel in my chest and right shoulder," he said.
Hussein said he found breathing difficult, suggesting exposure to poisonous gas.
A official at Imam Ali hospital said 11 of those treated at the facility showed symptoms of chlorine poisoning.
Chlorine bomb attacks have become increasingly common across Iraq in recent months.
In a separate development, the Mahdi Army forces of Muqtada al-Sadr, a prominent Shia cleric, battled Iraqi security forces in the southern city of Nasiriyah overnight, with 12 people reported dead.
Lieutenant Colonel Jawad Abdel Kadhim, head of the city's anti-terrorist police, was among those killed in the fighting, police and medical sources said on Wednesday.
"The clashes have killed two Iraqi soldiers and nine civilians," said Hadi Badr, Nasiriyah's public health chief.
Badr said 91 people had been wounded.
The clashes were sparked on Tuesday night when local police refused to release two fighters, earlier arrested on suspicion of using bombs and mortars against US-led and Iraqi forces, said security officials.
A ceasefire was agreed on Wednesday after local officials held emergency talks with representatives of the Mahdi Army.
"Everyone now agrees only government forces should carry guns on the street," said Sheikh Sabri Al-Remaidh, a former governor.
"Mahdi Army fighters have withdrawn and security has been restored."
Also on Wednesday, at least nine mortar rounds or rockets landed in Baghdad's US-controlled Green Zone, killing two Iraqis.
Eight people were also wounded in the attacks, said Lou Fintor, US embassy spokesman.