"Many people were sitting in the restaurants. That is why there are so many victims," the official said.
No group claimed responsibility for the attack, but the method and location was similar to previous attacks by al-Qaeda in Iraq.
Jalil al-Shimmari, the director of hospitals in Baghdad, said: "The attackers had no military target. They were all civilians. This shows the cowardice of the attackers."
Shula was also targeted by bombers on December 25 last year, killing four people.
Security has improved in Iraq since last year, but a rash of bombings in April made it the deadliest month for civilians since November.
The last large-scale bomb attack in Iraq was on April 29, in which 51 people were killed in twin car bomb attacks in the Shia Sadr City district of Baghdad.
Recent blasts have raised concern about security in the capital ahead of a June 30 deadline for the US to remove all combat forces from Baghdad and other Iraqi cities.