The car-bomb, the third in as many days, was left outside a marketplace for used cars and household items in the Shuhada neighborhood of the Bayaa district in south-west Baghdad.
"Preliminary investigations confirmed that the car was parked and it was not a suicide attack," Colonel Ahmed Hussein, a police spokesperson for South Baghdad told The New Arab.
Hussein noted that most of the victims were civilians and that the bomb had been left inside an unattended car.
Islamic State have claimed responsibility for the attack through IS-affiliated Amaq agency.
The security officials responsible for monitoring access to the marketplace have been arrested and are reportedly being questioned by the police.
The explosion comes the day after a similar attack on a used car market in East Baghdad's Sadr City, killing 18 people.
The day previous, on Tuesday, another car bomb killed four people, also in Bayaa district, south west Baghdad.
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A map of Baghdad, showing the locations of two bombings
Following that explosion, security was tightened across the city in anticipation of another attack, with increased car inspections on vehicles entering and leaving residential, commercial and industrial areas.
Explosions of a similar kind are usually claimed by the Islamic State group, which is attempting to hold its last major strategic stronghold in the north in Mosul.
Separately, IS claimed responsibility for a deadly attack in Pakistan.
A suicide bomber killed and wounded dozens of Sufi worshippers as they performed a ritual in Pakistan's Lal Shahbaz Qalandar Sufi shrine.
Medical workers told Al Jazeera that at least 45 people were killed in the blast, and at least 150 were injured.