Brigadier General Kudair al-Timimi from the Baquba police said that 20 people, including a woman and child, were wounded in the early morning attack.
Mohammed al-Kirrawi, a doctor at the Baquba general hospital, said most of the victims were struck by iron balls packed with the explosives to achieve maximum casualties.
He said the hospital lacked the necessary equipment to save many of the wounded.
"Among the wounded, there are seven in critical conditions and there is little hope that they will survive," he said.
Diyala province, of which Baquba is the capital, has seen Sunni tribesmen joining with US and Iraqi forces to tackle fighters from the al-Qaeda in Iraq group.
No group claimed immediate responsibility for the bombing but al-Qaeda has vowed to step up attacks on the security forces as well as the Sunni Arab leaders which have united against them.
"Iraq is still under foreign occupation and Iraqis continue to die in great numbers"
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On Sunday, 10 tribal leaders from the Diyala Salvation Council were abducted in Baghdad after a meeting with an adviser to Nuri al-Maliki, the Iraqi prime minister.
The number of tribal leaders kidnapped has been a source of conflict with some agencies reporting 11 missing.
The Iraqi defence ministry said eight of the men were rescued on Monday when soldiers raided the house where they were held.
The ministry said another raid was under way to try to find the tribal sheikhs still missing.
But two government officials from Diyala province said one of those missing, sheikh Modher al-Azzawi, was found dead earlier on Monday.
US forces have blamed a former commander from Moqtada al-Sadr's Mehdi Army for the kidnapping.
Also in Diyala on Monday, police found 20 decapitated bodies dumped near a police station west of Baquba.
The identity of the victims was not immediately known.
On Monday, al-Maliki spoke at the handover ceremony in Karbala.
He said that Iraq's military and political leaders needed to "make more efforts to rebuild the security forces" in order to control the country.
| Karbala is the eighth of 18 provinces handed over to Iraqi security forces[Reuters] |
"Allow me to say that we are late, very late, to reconstruct, to rebuild our forces for reasons that I do not want to mention here," he said.
Al Jazeera's James Bays said that violence between Shia factions in the province was a concern but a US diplomat had told him that they were confident in the security forces in the region.
"He says that they feel that the local Iraqi security forces in this province are ready to step up and take control of security," he said.
"That doesn't mean that American troops disappear from the province, they move to what is called an overwatch role, basically here to be called on in an emergency."
Karbala is the eighth of the country's 18 provinces to be handed over to Iraqi security forces.