Defence and interior ministry officials confirmed the toll and said the bomb went off in the capital's Nahdha district at around 9 am (0600 GMT), as people gathered at the market on the Muslim day of rest.
The blast was the latest in a string of attacks to hit the conflict-torn nation in the run-up to Tuesday's withdrawal of American troops from Iraq's urban areas.
"People burned and bodies were thrown everywhere," said Omar Hashem, 34, covered in blood, who was accompanying a friend planning to sell a motorcycle when the explosion struck.
"At first we ran away but we returned to help the victims. Blood and body parts covered dozens of motorcycles that were completely destroyed."
Bike trader Maytham Abdelamir, 23, crying, said: "There was a huge shockwave. I saw so many people burned; others were thrown in the air. My friend was killed."
Officials from two Baghdad hospitals told AFP that 54 people were wounded.
On Thursday, Prime Minister Nuri al-Maliki had moved to reassure Iraqis that his security forces were able to protect the population after a massive bomb killed dozens the previous day.
Wednesday's attack in a market in the Shiite district of Sadr City in northeast Baghdad was one of the deadliest this year, killing at least 62 people and wounding about 150.
"We assure you of Iraqi forces' readiness for the mission, despite some security violations, and we assure you that we are now more stable and steady," Maliki said.
He appealed to Iraqis to inform the army and police of any potential attacks, to ensure that the country did not return to the sectarian violence that blighted it throughout 2006 and 2007.
The flare-up of violence was part of "a plan that aims to awaken sectarianism, create chaos, abort the political process and prevent Iraqi people from standing on their own feet," he said.
The White House has insisted that President Barack Obama is not reconsidering his decision to withdraw troops from Iraq's urban areas.
However, in the face of persistent violence in Mosul, commanders revealed on Thursday that a deal has been reached for US troops to stay on in some areas of Iraq's main northern city in a non-combat role.
"The Iraqi government has agreed on the stay of some non-combat troops," said Major General Robert Caslen, the senior US officer in northern Iraq.
"They will support Iraqi forces in anything they want, and they will be in five districts only, working with Iraqis."
The latest attacks mean that June's death toll from violence will top the 155 Iraqis killed in May.
A June 20 truck bombing near the northern oil city of Kirkuk killed 72 people and wounded more than 200, the deadliest attack in 16 months.
On June 10, a car bombing in the largely peaceful southern province of Dhi Qar killed 19 people.
Earlier this month, Maliki warned that insurgents and militiamen were likely to step up their attacks in a bid to undermine confidence in the Iraqi security forces.
Violence has dropped markedly in Iraq in recent months, with May seeing the lowest Iraqi death toll since the 2003 invasion. But attacks remain common, particularly in Baghdad and Mosul.
Source: AFP Global Edition