The explosion wounded at least 12 others, and damaged several cars and shops in a busy commercial district of Karrada, an officer said on condition of anonymity because he was not authorized to talk to media.
The U.S. military said it also detained 13 suspects and destroyed a "foreign terrorist hideout" in two days of operations targeting al-Qaida in Iraq across the country.
American soldiers, acting on intelligence gleaned from Iraqis already in U.S. custody, approached a suspected militant safehouse Monday in a remote area of northwestern Iraq, the military said. Troops immediately came under heavy fire from a fortified enemy position, it said.
When U.S. forces called in airstrikes, "secondary explosions erupted from the target buildings, indicating weapons and bomb materials inside," a military statement said.
Five men were confirmed dead, and multiple suicide vests and heavy machine guns were also discovered in the ruins of their hideout, it said.
An alleged al-Qaida in Iraq bomber was captured with another suspect Monday in Mosul, and another five men were arrested south of the city, the military said.
Mosul is believed to be one of the last urban strongholds of the terror group, and U.S. and Iraqi forces have fought fierce battles with militants there in recent months.
The al-Qaida in Iraq "emir" of Tikrit, a mostly Sunni Arab city north of the Iraqi capital, was arrested late Sunday along with three other suspects, the statement said. Two others were detained in Baghdad.
