US forces narrowly averted an even higher casualty toll with the discovery of two other bombs in the area which they managed to detonate by controlled explosions.
The death toll from the car bombs is the highest since March 10, when a suicide bomber blew himself up at a Shiite mosque during a funeral, killing 47 people.
The force of the latest attack threw people to the ground and sent thick black smoke billowing over the city.
Ali Ahmed, 28, said he was selling ice cream when he heard an explosion, followed by gunfire and another explosion.
“My stall was partially destroyed because of this terrorist act,” he said. “Some people have lost their lives. As for me, I have now lost my source of income.”
Abdullah Hussein Zamel was cleaning tables at a restaurant near the heavily fortified Green Zone when the blast shattered the windows.
“I went outside and saw dead and injured people,” he said. “After that, I heard police open heavy fire on a second car.”
Panicked students from a nearby secondary school and university gathered in the street, some weeping. “We are terrified,” said Hoda Raheem Hadi, a 22-year-old computer science student. “Why is this happening?”
Al-Qaeda in Iraq said it carried out the attack.
In a statement posted on the Internet, the group, headed by Jordanian-born militant Abu Musab al-Zarqawi, said the attack targeted a patrol outside the office of Interior Minister Falah al-Naqib, who is in charge of the nation’s police.
The claim could not be independently verified.
Al-Naqib was in his office at the time of the explosions, but was not injured. He came out afterwards to examine the scorched road and blackened rubble left by the blast.
The ministry building, built by Saddam Hussein’s government to survive major attacks, was not damaged.
Meanwhile south of Baghdad in Hilla, the US military said a suicide bomber killed four Iraqi policemen and wounded three others.
The attacks would appear to mark a new surge in the violence.