At least four people were killed and 17 injured when a car bomb exploded just as two Western-style all-terrain vehicles passed by in a busy Baghdad street, with the blast knocking part of the front off a building and totally destroying the cars, police officers and witnesses said.

An AFP photographer saw four bodies covered in sheets at the site of the blast at the entrance to Sadoun Street, a main commercial boulevard on the eastern side of the Tigris, alongside the city's Tahrir Square, lined with restaurants, shops and residences.

At least two people were killed and 17 wounded in this morning’s car bombing, according to a tally by Doctor Salah Mahdi at the city's neurosurgical hospital.

The attack happened just after 8:am as the convoy of Western-style vehicles sped down the street, not far from the main headquarters of the US-led coalition across the river.

"For sure it was a suicide bombing," said Sergeant Sayed Khamat, who witnessed the attack.

Other witnesses said they thought a parked car was detonated by remote control as the convoy sped by.

Khamat said the two sports-utility vehicles destroyed resembled cars used by the US-run Coalition Provisional Authority, but there was no independent confirmation.

"There were many casualties. The vehicles were destroyed completely."

Khamat said three people, badly injured, were taken out of the first vehicle and rushed to hospital. One vehicle was blown on to the sidewalk, and a third civilian car was burnt in the blast. It was not clear if it was the attacker's car.

Flames completely devoured one vehicle, reducing it to burning chunks of metal.

An angry crowd started to yell, "No, No America, No, No Governing Council" and to hit the burnt-out jeeps with sticks and torched one of them.

The front of one building was destroyed and dazed people staggered out of the demolished ruins. People piled wounded on to the back of trucks and inside cars and rushed them to the hospital.

Some medics bandaged wounded and bloodied Iraqis on the pavement.

Saad Jassim Mohammed, 24, eating in a restaurant when it happened, said, "I rushed up to the building and I took out six dead bodies and I took out two people who were alive."

Army helicopters buzzed overhead. Ambulance sirens wailed. The heavy percussion of the blast rattled the city shortly after 8:00am.

Police sealed off the area. Since the new Iraqi caretaker government was unveiled on June 1, there has been a wave of car bombings and assassinations of government officials.

US and Iraqi officials have warned of a surge in violence ahead of the June 30 handover of sovereignty in Iraq.

At least seven people were killed and 23 wounded in a suicide bombing in Baghdad yesterday. - Sapa-AFP