The bomb in a car parked near a Shiite mosque in the city exploded at around 6:00 pm (1500 GMT), an official from Baquba Operations Command said.

Police have imposed a curfew in the city's Abu Sayeeda neighbourhood as they suspect there may be more bombs in the area, the official said.

Diyala province, of which Baquba is the capital, is confessionally and ethnically mixed and has been a persistent target for attack by Al-Qaeda militants seeking to exploit its communal tensions.

US and Iraqi officials have warned of the dangers of an upsurge in violence as negotiations on forming a new governing coalition have dragged on, giving insurgent groups an opportunity to further destabilise the country.

More than four months after a March 7 general election which gave no single bloc an overall parliamentary majority, the two lists which won most seats are still bickering over who should be the next prime minister.