"A car parked near Kahramana square exploded... It was targeting Shiite 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.
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 Shiite Islam, who pass away in 799 AD.
It was not immediately clear what was the target of Saturday's blast, which sent a large plume of dark smoke billowing into the air in Baghdad's Karrada neighbourhood.