Ministry spokesman Brig. Gen. Saad Maan confirmed the toll from the attack, which took place in the southwestern al-Bayaa neighborhood.
The Islamic State group claimed the bombing in an online statement circulated by its Aamaq news agency. The Sunni extremist group said it was targeting Shiite Muslims.
Iraqi officials said the bomb targeted car dealerships in the mostly Shiite neighborhood.
The extremist group has carried out near-daily attacks in Baghdad despite suffering military setbacks elsewhere in the country, including in the northern city of Mosul, where US-backed Iraqi forces have been waging a major operation since October.
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