A US government report blames Iraq for failure in reconstruction works.
Thirty-two people were injured in the blast in the mainly Shia district which occurred near a petrol station and an ice-cream shop.
The blast set cars on fire and left bodies strewn across the street.
Karrada, on the eastern side of the Tigris river, has been the target of several bombs in recent weeks.
The latest attacks in Baghdad come as new figurers show at least 1,652 civilians were killed in Iraq in July, one-third more than in the previous month.
According to figures compiled from three Iraqi ministries, July’s toll is also slightly higher than the number for February, AFP news agency said.
February saw the launch of a US troop “surge” aimed at reducing sectarian violence in the country.
In that month, 1,626 civilians were killed according to the ministries’ figures.
In June, 1,241 were killed, prompting hope that the troop reinforcements were having an effect, but July’s figure represents a 33 per cent increase in the number of deaths.
A senior US military official has said that the deployment of US troops has improved security in Iraq to some degree but that the country’s future is jeopardised by the failure of Iraqi leaders to forge political reconciliation.
Navy Admiral Michael Mullen told a senate hearing that security on the ground in Iraq is “not great, but better”.
But Mullen said the US military effort could succeed only if Iraqis struck a compromise to defuse sectarian divisions.
“Barring that, no amount of troops and no amount of time will make much of a difference,” he said.
Mullen is expected to be approved as the most senior military adviser to George Bush, the US president.
Mullen also said that an early withdrawal of US troops could turn Iraq into a “cauldron”.