"A car parked near Kahramana square exploded... It was targeting Shi’ite pilgrims," a police colonel said.
An Iraqi interior ministry official said at least seven people were killed and 20 wounded in the blast, which sent a plume of dark smoke billowing into the sky above the central neighbourhood of Karrada.
A medical source confirmed the casualty toll.
Worshippers have in recent days started walking to Kadhimiya, site of a shrine dedicated to Imam Musa Kadhim, the seventh of 12 revered imams in Shi’ite Islam, who died in 799 AD.
Security forces close some streets to traffic for the days-long pilgrimage, during which the marching worshippers and the hundreds of tents along their path where they can rest, eat and drink are considered particularly vulnerable to attacks.