The United Nations and the White House condemned the attack, while analysts said it would deal a blow to efforts to rebuild Iraq.
UN Secretary General Kofi Annan called on all groups in Iraq to refrain from violence.
“The Secretary General condemns in the strongest possible terms the terrorist attack in Najaf, in which the spiritual leader of the Supreme Council for the Islamic Revolution, Ayatollah Mohammad Baqer al Hakim, and many others were killed,” Mr Annan’s spokesman said in a statement.
“In the difficult days ahead, the Secretary General urges all political and religious groups in Iraq to exercise maximum restraint and to refrain from further acts of violence and revenge,” the statement said.
US President George Bush denounced the bombing as “vicious” and said the United States would help hunt down those responsible.
“I strongly condemn the bombing today outside the Imam Ali mosque,” he said in a statement from his Texas ranch.
“This vicious act of terrorism was aimed at (Hakim), at one of Shia Islam’s holiest sites, and at the hopes of the people of Iraq for freedom, peace, and reconciliation,” he said.
US Secretary of State Colin Powell labelled the deadly car bomb “a heinous crime against the Iraqi people and the international community”.
The US overseer in Iraq, Paul Bremer, said the bombing “shows that the enemies of the new Iraq will stop at nothing.” —AFP