The blast struck in the Shiite bastion of Sadr City, a sprawling district where authorities regularly carry out raids close to the busy market to seize illegal weapons.

"Three people were killed and four others injured in an explosion in a covered market near the Mreydi souk in Sadr City," Baghdad's military operations command said in a statement.

A source from the security services told AFP that a woman and a child were among those killed.

Authorities did not detail the cause of the blast and said an investigation would be launched.

The Mreydi souk is an important hub for illegal weapons sales and the area has seen years of violence since the US-led invasion of Iraq in 2003.

In June, at least 16 people were killed and some 30 injured in an explosion at a house in the area where weapons were stored.

Sadr City is the former bastion of the Mahdi Army, which before being dissolved was blamed by Washington for killing US soldiers and thousands of Sunni Muslims.

The militia was led by Shiite cleric Moqtada Sadr, whose political alliance triumphed in this year's parliamentary elections.

Violence has fallen in Iraq and particularly Baghdad, which suffered numerous jihadist attacks, since the government declared victory over the Islamic State group in December.

But despite government forces retaking all of Iraq's towns and cities from IS, clandestine jihadist cells remain present, analysts say.