A suicide bomber killed at least 35 people and wounded dozens in a crowded market in the Sadr City neighbourhood of Baghdad on Monday, the eve of the Eid al-Adha festival, security and hospital sources said.
More than 60 people were wounded, a police source said.
Islamic State claimed responsibility for the attack, the group's Nasheer news agency said on Telegram. It said one of its militants blew up his explosive vest among the crowds.
Hospital sources said the death toll could rise as some of the wounded were in critical condition.
Prime Minister Mustafa al-Kadhimi held an urgent meeting with top security commanders to discuss the attack, the premier's office said in a brief statement.
President Barham Salih posted a tweet saying: "With an awful crime they target civilians in Sadr city on the eve of Eid ... We will not rest before terrorism is cut off by its roots."
In April, the Sunni Muslim militant group Islamic State claimed responsibility for a car bomb attack on a market in Sadr City, Baghdad's main Shi'ite Muslim neighbourhood, that killed four people and wounded 20.
Islamic State also claimed responsibility for a bomb attack last January that killed more than 30 in the crowded Tayaran Square market in central Baghdad - Iraq's first big suicide bombing for three years.
Large bomb attacks were once an almost daily occurrence in the Iraqi capital but have dwindled since an Islamic State invasion of northern and western Iraq was defeated in 2017.