The AP news agency quotes the mayor as saying most of the victims were men playing dominos and drinking tea in the cafe when the explosion happened.
The area is said to be home to many Shias of Kurdish origin.
"I was near the cafe and suddenly a big explosion happened inside and there was chaos in the area," eyewitness Sadeq Abbas is quoted as saying by Reuters."Security forces started shooting in the air to disperse the crowd and prevent people from going near the cafe."
It is the first major bomb attack in Iraq in more than a month.
Such attacks have become much less frequent than they were a few years ago, says the BBC's Jim Muir in Baghdad, though people are still dying violently somewhere in Iraq every day.
Security officials say it is now much harder for the insurgents to get hold of the materials needed for such devices, our correspondent adds.
