IS claimed the attack in the town of Musayab, south of Baghdad, in a statement on its Amaq news agency. It didn't identify the bomber.
A security officer said the assailant was a woman who hid the bomb under the customary full-body veil.
The attack comes as Islamic State is about to lose Mosul, the de-facto capital of the hardline Sunni Muslim group in Iraq, to a U.S.-backed Iraqi offensive launched in October.
The group is also on the backfoot in neighbouring Syria, retreating in the face of a U.S.-backed Kurdish-led coalition attacking its capital there, Raqqa,.
Iranian-backed paramilitaries are taking part in the campaign fighting Islamic State in Iraq, attacking the group in the border region near Syria.
IS declared a self-styled "caliphate" over parts of Syria and Iraq three years ago.
