The attack happened in an outdoor market of Sadr City, a mostly Shia neighborhood located east of Baghdad, CNN reports.
Women and children were among those who were killed and injured.
The market area had been busy with shoppers preparing for the holiday of Eid al-Adha which began on Monday.
Without providing evidence, ISIS claimed to be behind the strike, saying it had been carried out by a suicide bomber in an explosive vest.
Police, however, have yet to determine what caused the blast, CNN reports.
"We will not be calm unless we uproot the hateful and cowardly terrorism, and it is certain that the will of the Iraqis is beyond their criminality and villainy," Iraqi President Barham Salih said in a statement.
"Not a day goes by in Iraq without a tragic incident," Sadr City resident Ali Yassin told CNN.
"Why can't we live like the rest of the countries? Why can't we enjoy peace like the rest of the world?"
"If I am financially capable, I would leave Iraq along with my family at once," Yassin added.
"This horrific attack right before Eid Al-Adha is a terrible reminder of the violence Iraqi children continue to face," UNICEF representative for Iraq Sheema Sen Gupta said in a statement, according to CNN.
"On the eve of Eid Al-Adha and as Iraqis mourn this sad moment, UNICEF calls for all actors in Iraq to work together towards a safer Iraq where children do not have to live in fear and where they enjoy their very basic activities and rights."