Several among the hundreds of mourners in the village of Al-Bouchaabane, a few kilometres from Baghdad airport, told AFP that some of the children were killed by the rocket as they played in front of their home late on Monday.

"This village is like a microcosm of Iraq," one mourner said. "If the government isn't capable of protecting us, how can it ensure the security of Iraq as a whole?"

The latest attack targeting American interests -- one of around 40 since early August, and many others stretching back months -- comes after Washington threatened to close its embassy and withdraw its remaining 3,000 troops from Iraq, unless the attacks cease.

The US State Department on Tuesday pointed the finger of blame at Iran-backed militias, saying they "pose an unacceptable danger" in Iraq.

"We have made the point before that the actions of lawless Iran-backed militias remains the single biggest deterrent to stability in Iraq," State Department spokeswoman Morgan Ortagus said in a statement.

"These militias pose an unacceptable danger to everyone in Iraq, from diplomatic officials and facilities to Iraqi activists and families, she said, paying condolences to the "victims... of these ruthless acts of violence."

"The Iraqi people deserve to live in safety and security, so we call on Iraqi officials to take immediate action to hold the perpetrators accountable," she added.

Monday's fatalities represent a new stage in the standoff between Prime Minister Mustafa al-Kadhemi, a head of the country's intelligence service long seen as close to Washington, and pro-Iran armed groups that are demanding US troops leave Iraq.

The death toll -- up from an initial five, after two children died of their wounds in hospital -- place these armed factions in an uncomfortable position.

The public has become increasingly disillusioned with years of violence and armed groups holding the country to ransom.

Possibly anticipating a backlash, pro-Iran social media accounts that usually laud such rocket strikes were silent in the wake of the latest attack.

Several high-ranking officials attended the funerals in a bid to provide reassurance, but several among the hundreds of Iraqis surrounding the coffins told AFP that they feel permanently unsafe.

In front of the victims' small home, dozens of tribal chiefs received condolences close to the crater left by the rocket.

Shrapnel holes were visible in walls and blood on the ground.