Police said the bomb was placed in a pickup truck parked next to minibus taxis near the main market in the predominantly Shi'ite neighborhood of al-Hurriya in northwestern Baghdad. The explosion left a heap of smoking, mangled wreckage.

The blast set fire to 20 shops and leveled a multi-storey building, a security source said. It damaged many vehicles and cut off electricity to the area.

A few weeks ago, the US military announced that violence in Iraq had dropped to a four-year low.

US officials blamed Sunni Arab al Qaeda militants for the huge car bombs that regularly hit Baghdad in 2006 and 2007, at the height of sectarian conflict in Iraq.

Baghdad has been relatively quiet since a May 10 truce ended weeks of fighting between security forces and militiamen loyal to anti-American Shi'ite cleric Moqtada al-Sadr. 

The improved security has allowed the Pentagon to reduce troop numbers this year. Some 20,000 American soldiers will have left Iraq by July, leaving 140,000 in the country.