A car bomb ripped through a busy market area in eastern Baghdad on Monday morning, killing at least 10 people, Iraqi officials said.

The explosives-laden car went off at the wholesale Jamila market in Baghdad's Shia district of Sadr City, a police officer said. The explosion also wounded 25 other people, he added, saying the death toll was expected to rise further.

A medical official confirmed the casualty figures. Both officials spoke on condition of anonymity.

A plume of thick black smoke was billowing from the area and people were running away in panic. At the site, twisted metal and shards of glass littered the pavement, along with vegetables and other goods sold at the market.

At least one soldier was seen being evacuated from the scene, which was sealed off by security forces.

No group immediately claimed responsibility for the attacks, though the attack had all the hallmarks of the militant Islamic State (IS) group, which often claims responsibility for large-scale attacks targeting Shia civilians in Iraq's capital.

The bombing came as Unites States-backed Iraqi forces are in final stages of recapturing the northern town of Tal Afar from IS, about 150 kilometres from Syria's border.

On Sunday, Iraqi military said it had “fully liberated” Tal Afar's town centre from IS militants. On Monday, the troops fought at the outskirts of al-Ayadia district, about 10 kilometres northwest of Tal Afar, where most of the militants fled.

Tal Afar was one of the few remaining towns in Iraq still in IS hands following the liberation of Mosul in July from the IS group. The militant group still controls the northern town of Hawija, as well as Qaim, Rawa and Ana, in western Iraq near the Syrian border.