The blast in Ramadi, 100km west of Baghdad, killed mainly women in a residential area, the sources said.
"We heard a big explosion and when we arrived at the scene we found a parked car on fire," a police officer said.
"Bodies were scattered everywhere and some houses were destroyed," he said, declining to be named. He said police had begun evacuating the wounded and had cordoned off the area in case of further explosions.
Five of the wounded were in a critical condition, a hospital source said.
Although violence in Iraq has eased since its peak in 2006-2007, last month at least 237 people were killed and 603 wounded in attacks, making it one of the bloodiest months since US troops withdrew at the end of last year.
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