The explosion and inferno also wounded another 34 people at the service station in Sadr City, and came just 24 hours after an Al Qaeda led group warned of attacks during Ramadan, the Muslim month of fasting.
Most of the victims were women and their children who were waiting for the cooking fuel for the first weekend of Ramadan, which for Sunnis began Saturday and starts Sunday for Shiites.
"The explosives were set off as people gathered to buy fuel from a petrol tanker which was standing at the service station," a Sadr City police officer said.
People from the neighborhood were seen rushing to the blast site using blankets as stretchers to carry the victims to hospitals.
A large pool of blood, mixed with oil and stagnant water, could be seen near the site, with rescuers searching in it for body parts and to collect valuables of victims to be handed over to their relatives.
Men and women, searching for their relatives and friends, rushed to the morgue of Sadr City's main hospital, where dozens of completely charred bodies were brought.
Sadr City, the impoverished district home to nearly 2 million Shiites, is often a target for Sunni extremists in the Shiite-Sunni sectarian conflict in which thousands of people have died since February.
Thousands of young Shiites from the district are loyal followers of radical cleric Moqtada Al Sadr and are members of his Mehdi Army militia, which the US military has accused of killing Iraq's Sunni Arabs.
The bombing followed a warning Friday by the Al Qaeda led group, the Mujahideen Shura Council, of increased attacks during Ramadan.
"The ... Mujahideen Shura Council announces that Saturday is the beginning of the blessed month of Ramadan" for Sunnis, it said, adding that it hoped that this would bring "conquests and victories."
But a little-known Sunni insurgent group, "Jund Al Sahaba Fi Al Iraq," or "Soldiers of the [Prophet Mohammed's] Companions in Iraq," claimed responsibility for Ramadan's first attack.
In an Internet message, it said that it had placed "a booby-trapped car ... in Sadr City, the city of Rafidha," a derogatory term used for Shiites.
Police said, however, that the bomb was detonated by setting off hidden explosives in oil barrels.
The attack was "in response to the crimes of the [Badr Shiite] militia against the Sunni community," it said, referring to the militia linked to the Supreme Council of Islamic Revolution in Iraq, a powerful Shiite party in the ruling Iraqi government.
The Islamic fasting month of Ramadan has been characterized by a spike of violence in Iraq in the past few years.
On Wednesday US military spokesman Major General William Caldwell had warned of increased attacks this year also during Ramadan - the holiest period of the Muslim calendar.
On Saturday an Iraqi army official also announced the capture of a leader of a group allied to Al Qaeda that had been planning a series of attacks on a northeastern city.
Sheikh Montasser Al Juburi and two aides were arrested in Muqdadiyah in Diyala province early Friday, said Brigadier General Shakr Abdel Hussein Al Kaabi of the 5th Iraqi Army division.
Juburi was described as a high-ranking figure in Ansar Al Sunna, an extremist Islamist group allied to Al Qaeda.
The latest bombing comes a few days after the United Nations said that a total of 6,599 civilians were killed in Iraq in the month of July and August.
Most of the dead were in Baghdad despite a massive security crackdown since mid-June and the presence of nearly 60,000 US and Iraqi troops and police patrolling the streets.
US commander Major General James Thurman said Friday that he was still short of 3,000 Iraqi troops for the Baghdad security plan.
Thurman said that the promised troops had refused to travel to Baghdad from their regions outside the capital.
He said that he needs the troops - six battalions' worth - to reinforce US troops and police in areas of Baghdad that are being cleared of insurgents.
The Iraqi government promised the battalions as part of a stepped-up campaign in August to quell sectarian violence in the city, he said.
Thurman said that there were roughly 15,000 US troops in Baghdad. The Iraqis have 9,000 army troops, 12,000 national police, and 22,000 local police in the city.
The US embassy, meanwhile, announced the death of a US national working as a contractor with the state department in Baghdad.
He was killed in a rocket attack Friday in the southern city of Basra.
Police also recovered seven corpses in Iraq Saturday.
Dozens of others were wounded in other attacks, while a Sunni imam was arrested in northern town of Samarra.
© 2006 Agence France-Presse
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