Reports said it appeared a bomb exploded among laborers lining up for daily jobs in a crowded market.
There were conflicting reports as to whether the blast was caused by a suicide bomber or a device concealed amid debris by the roadside.
Sadr City is a stronghold of the Al-Mahdi Army militia blamed for much of the sectarian violence rocking the city.
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SUNNI, SHI'A: Iraq is riven along sectarian lines, faults that frequently produce violent clashes and are a constant source of tension. Sectarian concerns drive much of Iraqi politics and are the main threat to the country's fragile security environment.