The attack took place on Wednesday in the city of Baquba, 65km north of the capital.
Aljazeera learned that the blast occurred after US forces said they had arrested 390 people in two areas north of Baquba.
Baquba is the capital of Diyala province, which has seen considerable violence linked to sectarian tensions in the run-up to 15 December elections.
At the end of October, 30 people were killed and dozens wounded by a bomber who lured customers to a truck laden with dates before detonating a massive charge in a small Shia town near Baquba.
Elsewhere in Iraq, US and Iraqi troops completed their assault on a small western town near the Syrian border in an operation the army says was pitted against al-Qaida fighters in the frontier region.
The US military said on Wednesday that the main clearing operation in Husayba was completed on Tuesday night but patrols and raids were still being conducted against.
“Iraqi soldiers, US marines and sailors continue to find roadside bombs, car bombs and weapons caches throughout the city,” it said on the fifth day of Operation Steel Curtain in the far west of the largely Sunni Arab province of Anbar.
The US army says patrols and
The US says it has detained around 180 fighters and killed 36 more since the operation started on Saturday. One US marine was shot dead.
The US statement said around 900 residents of Husayba displaced by the fighting were being housed nearby by Iraqi forces and would remain there until it was safe to return.
After similar operations in the region, US forces have withdrawn to their bases after clearing the area and fighters have simply moved back in after them.
This time the US military says Iraqi troops will stay in the area to stop that.
“Operation Steel Curtain continues as Iraqi army soldiers and US forces set conditions for a permanent security presence within the city,” the statement said.
Al-Qaida’s military wing in Iraq has said in an unverified statement posted on a website that the homes of anyone who “collaborated” with the military would be “brought down on their heads”.
Ahmed ben Helli: Iraq factions
In other developments, politicians from some of Iraq’s factions will be invited to visit Cairo on 19 November for a preparatory meeting before a planned national reconciliation conference, a senior Arab League official said on Wednesday.
An Arab League delegation has been visiting Baghdad to persuade politicians from Iraq’s Shia, Sunni Arab, Kurdish and other communities to attend the conference, which had originally been planned for 15 November.
Billed as a way to heal deep sectarian rifts in post-Saddam Iraq, the conference was put off while organisers tried to lure more people to the table.
Speaking after talks at the Iraqi Foreign Ministry, Ahmed ben Helli said there would be a meeting in the Egyptian capital, where the Arab League is based, on 19 November to prepare the ground for a main conference to be held later.