Iraqi television images showed a man running down a smoke-filled street holding a dead baby above his head.
Smoke was rising from the child's body.
"A car entered the checkpoint for the shrine and blew up in the midst of a crowd of people. Shops have been destroyed, a dozen cars caught fire," said Jasim Najim, a shop owner nearby.
Elsewhere in Iraq, at least another 19 people were killed on Saturday in the ongoing carnage.
'Greatest evil'
Earlier on Saturday, Moqtada al-Sadr, the Shia leader, denounced George Bush, the US president, and urged him to withdraw US troops from Iraq.
Calling Bush "the greatest evil", al-Sadr said in a letter read out by a Sadrist MP in parliament that an eventual US pullout would be a "victory for the Iraqi people".
"Here are the Democrats demanding that you withdraw at least with a timetable and you are stubborn against them," said al-Sadr, whose Mahdi Army militia fought two uprisings against US forces in 2004.
Al-Sadr also protested against the controversial wall that is being built by US and Iraqi troops around a Sunni enclave in Baghdad to thwart sectarian attacks.
"How can you be seeking to avoid sectarianism, while you are inciting it through building a wall?" he said.
"You, Bush, you have planted violence and hatred. Are you capable of ending it? I say not at all."
The US military said on Saturday that nine of its troops had been killed on Friday and Saturday. Nearly a 100 US troops have died in Iraq so far this month.