The attack occurred in the evening when a booby-trapped car detonated at the Amal-Shaabi thoroughfare in the predominantly Sunni neighborhood of Ameriyah in western Baghdad, the source said on condition of anonymity.
The massive explosion destroyed several nearby shops and many stalls, along with damaging several nearby civilian cars and buildings, the source said.
The toll could rise as ambulances, police and civilian vehicles were evacuating the victims to the city's hospitals and medical centers, the source added.
No group has so far claimed responsibility for the attacks, but the Islamic State (IS) militant group, in most cases, is responsible for such attacks targeting crowded areas, including markets, cafes and mosques across Iraq.
Terrorist acts, violence and armed conflicts killed 382 Iraqis and wounded 908 others in January across Iraq, the United Nations Assistance Mission for Iraq said.
The attacks came as the Iraqi security forces backed by anti-IS international coalition are carrying out a major offensive to drive out the IS militants from its last major stronghold in Iraq's northern city of Mosul.