It has been targeted several times in the past. Seven people were killed there in a blast in January, a month after three people were killed in another attack.
STAINED WITH BLOOD
Bystanders and stallholders covered their noses with masks because of the stench after the bombing. Stallholder Mohammed Abu Salim said police fired into the air after the blast.
"We expected another explosion so we all ran away," he told Reuters. "Then we went back to evacuate the wounded. I saw someone at a sandwich booth, he was burned completely, smoke was coming from his body. Another person lost both his legs."
Another witness, who did not give his name, said the bomb went off at about 9 a.m. (0600 GMT) and had been hidden in a box used to keep birds sold at the market. He said he had helped remove about a dozen bodies.
"I have already changed my clothes, they were stained with blood," he said.
The increase in U.S. troops has targeted Shi'ite militias and al Qaeda fighters who are blamed for most large-scale bombings in Iraq. U.S. commanders however say that overall levels of violence in Iraq remain too high.
On Thursday, 10 mortar bombs landed in Baghdad's Green Zone, the heavily fortified central Baghdad compound which houses the U.S. embassy and the Iraqi parliament, in an attack coinciding with the U.S. Thanksgiving holiday.
The growing use of neighbourhood police units, organised by mainly Sunni Arab tribal sheikhs, has also been credited for playing a part in bringing violence levels down.
But the neighbourhood police units, organised by "Awakening Councils" of tribal leaders, have also become targets for attacks in recent weeks.
Police said al Qaeda militants killed eight members of a neighbourhood police patrol on Thursday in Baghdad, raking them with heavy machinegun fire from a stolen Iraqi army vehicle.
