A Defense Ministry official said gunmen at impromptu checkpoints stopped cars, ordered the passengers out, and then shot them. Conflicting reports said between 37 and 42 people, including women and children, had been killed.
U.S. and Iraqi forces have surrounded the area and are searching for the gunmen.
Earlier, Iraqi troops have made an overnight raid on a Shi'ite mosque in southeastern Baghdad "to locate a suspected terrorist cell leader" believed to be hiding in the building. The U.S. military said security forces initially cordoned off the Al-Sadrain mosque and entered it about four hours later. No shots were fired, and 20 people were detained.
The statement did not identify the suspected militant.
Meanwhile, a group claiming to be holding a kidnapped Sunni female member of parliament has demanded the release of 25 Shi'as detained by U.S. forces in return for her freedom.
Taysir al-Mashhadani and seven of her bodyguards were seized on July 1 by gunmen in a Shi'ite area of Baghdad. The largest Sunni bloc in parliament has suspended its participation in the legislature until she and her guards are released.
(AP, Reuters, AFP)