Smoke billowed into the sky after the thunderous explosion, which also left nine cars burned and set a three-story building on fire in the busy Karradah shopping district, according to police and hospital officials who gave the casualty toll.
It was the deadliest in a series of attacks that left more than 40 people dead nationwide.
The three U.S. Marines and a sailor died Tuesday while conducting combat operations in Diyala province — the site of a major military operation against a Sunni insurgent stronghold, the military said Thursday. It announced earlier that a U.S. soldier had been killed Wednesday during a gun battle in southern Baghdad.
Identities of the dead were withheld pending notification of relatives.
Earlier Thursday, Lt. Gen. Ray Odierno, the top day-to-day U.S. commander in Iraq, expressed cautious optimism over a decline in the number of American troops killed this month.
At least 64 U.S. troops have died so far in July, after the death toll topped 100 for the previous three months, according to an Associated Press tally based on military statements.
Odierno said it appeared that casualties had increased as fresh U.S. forces expanded operations into militant strongholds as part of the five-month-old security operation aimed at clamping off violence in the capital, but were going down as the Americans gained control of the areas.
"We've started to see a slow but gradual reduction in casualties, and it continues in July," he said at a joint news conference with Iraqi military commander Maj. Gen. Abboud Qanbar. "It's an initial positive sign, but I would argue we need a bit more time to make an assessment whether it's a true trend."
Odierno said networks continue to smuggle powerful roadside bombs and mortars across the border from Iran despite Tehran's assertions that it supports stability in Iraq.
His remarks came two days after the U.S. and Iranian ambassadors to Iraq met in Baghdad and agreed to establish a security committee to jointly address the violence amid Washington's allegations that Tehran is fueling the violence by support Shiite militias. Odierno said the military also believes training of extremists is being conducted in Iran.
"One of the reasons why we're sitting down with the Iranian government ... is trying to solve some of these problems," Odierno said at a news conference in the Green Zone, which is home to the U.S. Embassy and the Iraqi government headquarters.
"We have seen in the last three months a significant improvement in the capability of mortarmen and rocketeers to provide accurate fires into the Green Zone and other places, and we think this is directly related to training that is conducted in Iran," Odierno said. "So we continue to go after these networks with the Iraqi security forces."
Iran has denied the U.S. allegations about its activities in Iraq.
Attacks against the sprawling complex along the Tigris River in the center of Baghdad have increased in recent months, adding to the concern over the safety of key Iraqi and international officials and thousands of U.S. soldiers and contractors who live and work there.
On July 10, a barrage of more than a dozen mortars or rockets struck the area, killing at least three people, including an American, and wounding 18. In a report last month, the United Nations office in Baghdad said the "threat of indirect fire" — meaning rockets and mortars — into the Green Zone had increased, adding that the barrages had become "increasingly concentrated and accurate."
In other developments: