An Iraqi National Guard official said he believed all those killed were civilians.
The attack took place shortly after 8am (0400 GMT) on Monday as people were arriving at work.
Earlier, on Sunday evening, a senior Iraqi Defence Ministry official was assassinated in Baghdad, in the latest of a string of attacks on Iraqi officials, a ministry spokesman said on Monday.
He said Aisam Jasim Qasim, a director general in the ministry, was killed by three unidentified men at about 10pm (1800 GMT) on Sunday.
The ambush occurred in the southern Saydia neighbourhood where the car bomb exploded on Monday morning.
Assassination took place
Several senior Iraqi officials have been attacked for cooperating with US-led forces in the country.
The attackers, driving an unmarked white car made a hasty getaway after shooting and killing Jasim Kadhim, said the spokesman.
Kadhim, one of about 25 director generals at the newly re-established Defence Ministry, was the latest in a long line of high-profile figures targeted in a 15-month insurgency that bred during the US-led occupation.
As for the explosion on Monday morning, US army Colonel Bill Salter said he believed the attack was carried out by a car bomber and said there were several dead.
Several cars were wrecked in
A Reuters witness saw body parts scattered across the area in front of the police station, including a severed foot.
The blast destroyed several cars, including several police vehicles, and flames were still licking at the wreckage more than half an hour after the explosion.
A large pool of blood gathered on the street outside the police post as the wounded were loaded into ambulances.
It is the latest in a series of car bomb attacks in recent days.
A car bomb blast outside the headquarters of the US military and the Iraqi interim government in Baghdad last week killed 11 people and wounded about 30.
Also last week, a car bomb blast outside an Iraqi National Guard garrison 200km northwest of Baghdad killed 10 people and wounded two dozen.