BAGHDAD (REUTERS) - A car bomb killed at least 100 people including children in a busy market in an Iraqi town on Friday, in one of the deadliest attacks since Islamic State militants overran large parts of the country.

The force of the blast in Khan Bani Saad, about 30km north-east of Baghdad, brought down several buildings, crushing people who were celebrating the end of the Muslim fasting month of Ramadan, police and medics said.

No group immediately claimed responsibility, but Islamic State in Iraq and Syria (ISIS) militants who control large parts of northern and western Iraq have previously carried out attacks in the mixed eastern province of Diyala where Khan Bani Saad is located.

Angry crowds went on the rampage after the explosion, smashing the windows of cars parked in the street in grief and anger.

"Some people were using vegetable boxes to collect children's body parts," said police major Ahmed al-Tamimi from the site of the explosion, describing the damage to the market as "devastating".

An officer from the Diyala police command said rescue crews were still retrieving bodies from under the debris and the death toll could rise further.

The Diyala provincial government declared three days'mourning and ordered all parks and entertainment places to close for the rest of the Eid ul-Fitr holiday to avoid further attacks.