The jihadist organisation took responsibility for the blast in Sadr City via its propaganda agency Amaq, claiming the "martyrdom operation" had killed around 40 people.
Iraqi police sources said at least 32 people were killed and more than 60 wounded when an explosives-laden vehicle went off on a square where daily labourers were waiting for jobs.
IS also claimed an attack in central Baghdad that killed at least 27 people on Saturday.
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