A suicide bomber set off an explosives-packed car outside a Baghdad hospital on Friday, killing 31 people in the capital's deadliest day in a month, amid a political crisis that has stoked tensions.

The attack in a predominantly Shiite neighbourhood, which also left 60 people wounded, came days after Al-Qaeda warned it would continue targeting Shiite Muslims and barely a month after US troops completed their withdrawal, raising fresh concerns about the capabilities of domestic security forces.

The 11:00 am (0800 GMT) attack struck outside Zafraniyah hospital in east Baghdad as a funeral procession was transporting the bodies of a family who had been killed in the capital on Thursday.

Medical and security officials put the toll at at least 31 dead and 60 wounded. Eight security force officers and four women were among those killed.

Helicopters flew overhead as a heavy security presence cordoned off the site of the explosion, while distraught witnesses screamed in anguish, surrounded by the remains of the dead, their clothes and shoes, and chunks of twisted metal.

Outside the hospital, groups of men called out names, searching for missing relatives.

Inside, people crowded around medics to ask about their loved ones, but one nurse said simply: "I cannot tell you anything -- there are only arms and legs, we do not know who they belong to."

Abu Jassim, who was outside the hospital when the bomber struck laid the blame for the attack with the security forces, telling AFP: "They are responsible for this, there were a large number of policemen and they did not stop the car or check it.

"All this reminds me exactly of what was happening in 2006 and 2007, when all of our days were bloody," the 57-year-old said, referring to the height of Iraq's sectarian bloodletting.

Several nearby shops and houses were burned or destroyed, with many of their windows shattered, while an ambulance and multiple cars were completely burned out.

"I saw a yellow taxi going in the direction of the funeral procession, and then it exploded," said Ayman Rabiyah, an employee of the Baghdad municipality.

"The funeral corpses went flying into the air. I carried the dead body of a young girl, and the corpse of a man whose head had been blown off, to the hospital."

The blast hit the funeral procession of Mohammed al-Maliki, a real estate agent who was killed along with his wife and son in west Baghdad on Thursday.

Maliki and his family were killed by gunmen in Yarmuk, although there have been differing accounts of the attack itself.

A doctor at Yarmuk hospital said the attackers burst into a real estate agency and killed three people, while a security official said four people, including two real estate agents, died when gunmen opened fire on their car.

Violence in Iraq is down from its peak in 2006 and 2007, but attacks remain common. More than 200 people have been killed in attacks since American forces completed their pullout on December 18, according to an AFP tally.

Friday's blast came a day after violence in Iraq killed 17 people, and is the capital's bloodiest day since a wave of bombings in Baghdad killed 60 people on December 22.

US troops left behind a domestic security force that officials say is capable of maintaining internal security, if not defending Iraq's borders, airspace and territorial waters.

The Zafraniyah attack comes amid a month-long political crisis that has pitted the Shiite-led government against the main Sunni-backed bloc, stoking sectarian tensions.

The row erupted when authorities charged Sunni Arab Vice President Tareq al-Hashemi with running a death squad and Prime Minister Nuri al-Maliki, a Shiite, called for his Sunni deputy Saleh al-Mutlak to be sacked after the latter said the premier was "worse than Saddam Hussein".

The United Nations and the United States have urged calm and called for dialogue but oft-mooted talks among Iraq's political leaders have yet to take place.

Messages have meanwhile been posted by Al-Qaeda supporters on the Honein jihadist forum vowing further attacks targeting Iraqi Shiites.