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The bomb went off in a wholesale vegetable market in the Sadr City area of north Baghdad at around 6:00 am (0300 GMT), peak time for shops buying produce.
Interior ministry spokesman Brigadier General Saad Maan said the bombing also wounded 100.
Medics collected human remains at the scene, an AFP photographer said.
The explosion devastated the market, ripping through buildings, killing horses used to transport vegetables and burning vehicles.
IS claimed responsibility for what it termed the "blessed operation."
It frequently targets members of Iraq's Shiite Muslim majority, whom it considers heretics, often striking in areas where crowds gather, such as markets and cafes, in a bid to cause maximum casualties.
The acting head of UN's Iraq mission, Gyorgy Busztin, denounced the attack, saying it was "an indiscriminate act of terrorism aimed at weakening the resolve of the Iraqi people".
The United States also condemned the blast and other recent attacks, saying "these atrocities show once again the utter disregard (IS) has for innocent civilians."
And the European Union termed the attack a "criminal act that seeks to stoke the sectarian flame by inflicting maximum casualties amongst Iraqis."
- Partition 'could happen' -
Bombings such as the Sadr City attack are a significant source of tension in Iraq and have worsened the country's sectarian divide.
General Raymond Odierno, who served as the top US commander in Iraq from 2008 to 2010, told a news conference Wednesday the country may ultimately have to be divided up.
Asked if reconciliation between Sunnis and Shiites were possible, he said "it's becoming more difficult by the day" and pointed to a future in which "Iraq might not look like it did in the past".
Questioned on partition, he said: "I think that is for the region and politicians to figure out, diplomats to figure out how to work this, but that is something that could happen."
"It might be the only solution but I'm not ready to say that yet."
Prime Minister Haider al-Abadi's media office slammed him for making what it termed "an irresponsible statement (that) reflects an ignorance of the Iraqi reality."
Iraq has three main communities that would likely form the basis for the partition of the country if that were to occur: the Kurds, who already have an autonomous region, and Sunni and Shiite Arabs.
Kurds dominate the country's north and Shiites the south, while the Sunni Arabs are distributed across western, northern and central Iraq.
But for now, "we have to deal with (IS) first and decide what it will look like afterwards," Odierno said.
- Signature IS tactic -
IS overran large parts of Iraq in June 2014 and also holds significant territory in neighbouring Syria.
The Iraqi army, which the United States spent billions of dollars to train and equip, performed dismally in the early days of the IS offensive.
Baghdad's forces have since regained ground from the jihadists with backing from a US-led coalition and Iran, but much of the country's west remains outside government control.
Even before the IS offensive, bombings targeting civilians in Iraq were a major threat, killing hundreds of people per month.
With jihadists occupied with fighting elsewhere, the frequency of blasts in Baghdad has declined since IS launched its offensive.
But bombings are still IS's signature tactic, with the group planting explosives to help defend areas it holds and deploying suicide bombers as part of its offensive strategy.
The Baghdad blast came two days after bombings in Diyala province, northeast of the capital, killed more than 30 people.
A massive suicide attack in the province killed more than 120 last month, one of the deadliest single bombings since the 2003 US-led invasion.
On Thursday, Germany said IS had carried out a chemical weapons attack against Kurdish fighters in northern Iraq, causing respiratory problems but no deaths.
IS has allegedly used chemical weapons on multiple occasions in Iraq and Syria, but such attacks have been limited and have had less impact than its bombings.
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Interior ministry spokesman Brigadier General Saad Maan said the bombing also wounded 100.
Medics collected human remains at the scene, an AFP photographer said.
The explosion devastated the market, ripping through buildings, killing horses used to transport vegetables and burning vehicles.
IS claimed responsibility for what it termed the "blessed operation."
It frequently targets members of Iraq's Shiite Muslim majority, whom it considers heretics, often striking in areas where crowds gather, such as markets and cafes, in a bid to cause maximum casualties.
The acting head of UN's Iraq mission, Gyorgy Busztin, denounced the attack, saying it was "an indiscriminate act of terrorism aimed at weakening the resolve of the Iraqi people".
The United States also condemned the blast and other recent attacks, saying "these atrocities show once again the utter disregard (IS) has for innocent civilians."
And the European Union termed the attack a "criminal act that seeks to stoke the sectarian flame by inflicting maximum casualties amongst Iraqis."
- Partition 'could happen' -
Bombings such as the Sadr City attack are a significant source of tension in Iraq and have worsened the country's sectarian divide.
General Raymond Odierno, who served as the top US commander in Iraq from 2008 to 2010, told a news conference Wednesday the country may ultimately have to be divided up.
Asked if reconciliation between Sunnis and Shiites were possible, he said "it's becoming more difficult by the day" and pointed to a future in which "Iraq might not look like it did in the past".
Questioned on partition, he said: "I think that is for the region and politicians to figure out, diplomats to figure out how to work this, but that is something that could happen."
"It might be the only solution but I'm not ready to say that yet."
Prime Minister Haider al-Abadi's media office slammed him for making what it termed "an irresponsible statement (that) reflects an ignorance of the Iraqi reality."
Iraq has three main communities that would likely form the basis for the partition of the country if that were to occur: the Kurds, who already have an autonomous region, and Sunni and Shiite Arabs.
Kurds dominate the country's north and Shiites the south, while the Sunni Arabs are distributed across western, northern and central Iraq.
But for now, "we have to deal with (IS) first and decide what it will look like afterwards," Odierno said.
- Signature IS tactic -
IS overran large parts of Iraq in June 2014 and also holds significant territory in neighbouring Syria.
The Iraqi army, which the United States spent billions of dollars to train and equip, performed dismally in the early days of the IS offensive.
Baghdad's forces have since regained ground from the jihadists with backing from a US-led coalition and Iran, but much of the country's west remains outside government control.
Even before the IS offensive, bombings targeting civilians in Iraq were a major threat, killing hundreds of people per month.
With jihadists occupied with fighting elsewhere, the frequency of blasts in Baghdad has declined since IS launched its offensive.
But bombings are still IS's signature tactic, with the group planting explosives to help defend areas it holds and deploying suicide bombers as part of its offensive strategy.
The Baghdad blast came two days after bombings in Diyala province, northeast of the capital, killed more than 30 people.
A massive suicide attack in the province killed more than 120 last month, one of the deadliest single bombings since the 2003 US-led invasion.
On Thursday, Germany said IS had carried out a chemical weapons attack against Kurdish fighters in northern Iraq, causing respiratory problems but no deaths.
IS has allegedly used chemical weapons on multiple occasions in Iraq and Syria, but such attacks have been limited and have had less impact than its bombings.
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