The blast took place before noon when a booby-trapped car went off near the electricity office at Jamila wholesale market in Baghdad’s Shiite district of Sadr city, the source told Xinhua on condition of anonymity.
Many nearby shops and stalls were destroyed and several civilian cars were damaged by the blast, which caused a plume of grey smoke to rise above the scene, the source said.
Iraqi security forces cordoned off the scene and fire engine gathered to put off some fires at nearby shops and buildings, while ambulances evacuated the killed and wounded people to the city hospitals.
A videotape circulated by local media showed the wreckage of shops and stalls, while many angry people were collecting vegetables scattered at the outdoor vegetable market.
No group has so far claimed responsibility for the attack, but the Islamic State (IS) militant group, in most cases, is responsible for such attacks, targeting areas where crowds of people gather, including markets, cafes and mosques across Iraq.
The attack comes as the Iraqi forces are in final stages of recapturing the northern town of Tal Afar from IS.
Terrorist acts, violence and armed conflicts killed 239 civilians and wounded 273 others in July across Iraq, the United Nations Assistance Mission for Iraq said earlier in the month.
Many blame the current chronic instability, cycle of violence, and the emergence of extremist groups, such as the IS, on the United States that invaded and occupied Iraq in March 2003, under the pretext of seeking to destroy weapons of mass destruction in the country.
The war led to the ouster and eventual execution of former Iraqi President Saddam Hussein, but no such weapons have been found.