The attack took place in the oil-rich city of Kirkuk, 290 kilometres north of Baghdad, said Police Col Taha Salaheddin.
The bomb went off as worshippers were leaving the al-Qodus mosque after morning prayers for the beginning of the Eid al-Adha holiday, Salaheddin said.
No one immediately claimed responsibility for the attack and police sealed off the area around the mosque. Medics in the Kirkuk General Hospital confirmed the casualty figures, speaking on condition of anonymity because they were not authorised to talk to the media.
"Our security forces have taken all the necessary measures within our capabilities to protect the people during Eid, but unfortunately, terrorists were able to penetrate the city and strike innocent people once again," he said.
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Kirkuk, a frequent flashpoint for violence, is home to an ethnic mix of Arabs, Kurds and Turkomen who all have competing claims to the oil-rich city.
More than 5,000 people have been killed in Iraq since al-Qaida and other militants stepped up attacks following a deadly security crackdown against a Sunni protest camp in April.
Much of the violence tearing through Iraq is the work of the local al-Qaida branch, a Sunni extremist group, which frequently carries out attacks against Shiites and those seen as linked to the Shiite-led government.
But several Sunni mosques have also been targeted in recent months and while it is possible that Sunni insurgents could be behind attacks on Sunni mosques in hopes of stoking sectarian hatred, Shiite militias that have begun remobilising across Iraq may also be behind such assaults.
The Eid al-Adha holiday commemorates the readiness of the Prophet Ibrahim, known to Christians and Jews as Abraham, to sacrifice his son, Ismail, on God's command.