The attack struck the Baghdad Jadida area near a refreshments tent for Shiites taking part in annual commemorations of the death of Imam Hussein, a revered figure in Shiite Islam.
IS, which frequently targets Shiite Muslims, whom it considers heretics, issued a statement claiming the attack and said it was carried out by a suicide bomber - an account confirmed by two interior ministry officials.
But a medical officer and people at the scene of the attack said it was a roadside bomb, not a suicide bomber - a repeat of differing accounts of another bombing in the same area at the end of last month.
Unusually, there were also two different versions of the IS claim posted online Sunday: one which gave the correct location and another saying it had taken place in Shaab, an area across the city.
Iraqi forces are preparing for a push in northern Iraq on Mosul, the last IS-held city in the country, after regaining much of the Iraqi territory the jihadists seized in June 2014.
But IS has maintained the ability to carry out attacks in government-controlled areas even as it loses ground.