The vehicle was parked in a crowded street full of garages and used car dealers, in Hayy al-Shurta, security sources said. The death toll could climb further as many of the wounded are in critical condition, a doctor said.
The bombing, the deadliest so far this year in Baghdad, is the second to hit car markets this week, after one on Wednesday.
Islamic State has stepped up bombings in Iraq in retaliation for a US-backed campaign that dislodged the hardline Sunni group from most Iraqi cities it took over in 2014. The militants also control parts of neighbouring Syria.
A suicide bomber detonated a pick-up truck on Wednesday in the Sadr City suburb of the capital, killing at least 15 and wounding 50. The explosion also targeted a street full of used car dealers.
