The Islamic State group, which swept through large parts of Iraq two years ago but no longer holds fixed positions in Diyala province where Moqdadiyah is located, claimed responsibility for the attack.
"It was a place where young people were gathered... For now we have seven killed and 22 wounded," a police colonel in Moqdadiyah said.
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"Abu Ifan al-Moslawi, may God accept him, was able to... blow up his explosive belt," ISIS said in a statement published on social media, adding that the blast had left 30 dead and wounded.
The interior ministry said the explosion occurred in a market area.
The attack happened despite the bomber's picture being put up at checkpoints all over town after his mother tipped off the security services, the ministry also said in a statement.
Moqdadiyah is in the religiously and ethnically mixed province of Diyala, which the government declared free of ISIS in January 2015 but which has continued to see suicide and car bomb blasts since.
ISIS also claimed a May 13 attack on a cafe packed with supporters of the Real Madrid football club, in the town of Balad that killed 16 people.
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