An SUV rigged with explosives was parked near a beauty salon in a busy market in the Sadr City neighborhood, Iraqi police reported.
The bomb was detonated by a suicide bomber, a media outlet that sympathizes with Islamic State (IS, formerly ISIS/ISIL) reported.
The blast killed over 20 people on the spot while others succumbed to their wounds shortly after. At least 60 people were injured by the blast, and many remain in critical condition.
IS targeted Sadr City in February in a twin bombing attack, which claimed the lives of 70 people.
The group is ultra-conservative Sunni Muslim and considers Muslims adhering to other sects of Islam apostates and their enemies.
Sectarian violence remains one of the biggest security challenges in Iraq, since the US invasion of Iraq deposed its Sunni minority in power and installed a Shiite majority government.
Military officers and former officials of Saddam Hussein’s government, whose careers were ruined by the change of regime in Baghdad, were instrumental in Islamic State’s rise from a little-known Iraqi ally of Al-Qaeda to the most-publicized terrorist threat in the modern world.