Although authorities have not announced an official death toll, Dr. Raad Jabbar at the nearby Al-Kindi Hospital said the bodies of seven people were brought to his facility. He said at least 18 others were injured.
Jabbar said six of the bodies were burned beyond recognition and that the seventh appeared to be a civilian.
Rescue personnel arrived minutes after the explosion and worked with passersby to find survivors in the rubble of a nearby building that collapsed.
The U.S. military said it had no immediate information about the blast.
Insurgents have stepped up attacks against Iraqi police since U.S. and allied Iraqi government troops launched a major offensive in Al-Fallujah earlier this week.
Fighting in Al-Fallujah today moved into the southeastern part of the city -- the last section where concentrations of militants continue to resist the U.S.-led ground assault.
The U.S. military says it has taken control of about 70 percent of Al-Fallujah since the assault began late on 8 October.
Embedded correspondents said most of the insurgents appear to be in isolated pockets and are taking heavy casualties. U.S. military officials confirmed that 11 U.S. soldiers and two Iraqi government troops have been killed in Al-Fallujah since the start of the offensive. They said scores of insurgents also have been killed.
On the broader streets of Al-Fallujah, U.S. tanks continue to attract concentrated fire. In the narrow alleyways, U.S. troops are engaged in close-quarter combat with insurgent fighters.
Parts of southeastern Al-Fallujah were targeted by U.S. air and artillery strikes overnight, but insurgents are reported to still be firing at advancing U.S. Marines there.
There are reports that some insurgents are trying to break out of the U.S. encirclement of Al-Fallujah on the city's southeastern side.
But some 800 Black Watch troops from Britain have been deployed to the east and southeast of Al-Fallujah to stop any insurgents trying to flee to Baghdad.
(with news agency reports)