Interior ministry spokesman Brigadier General Saad Maan said the bombing killed 54 people and wounded 100.

Medics collected human remains at the scene of the blast, an AFP photographer said.

The bombing devastated the market, ripping through buildings, killing horses used to transport vegetables and burning vehicles.

ISIS claimed responsibility for what it termed the "blessed operation" in a statement posted online.

ISIS frequently targets members of Iraq's Shi'ite Muslim majority, whom it considers heretics, often striking in areas where crowds gather, such as markets and cafes, in a bid to cause maximum casualties.

The acting head of UN's Iraq mission, Gyorgy Busztin, issued denounced the attack in a statement saying it was "an indiscriminate act of terrorism aimed at weakening the resolve of the Iraqi people".

Bombings such as the Sadr City attack are a significant source of tension in Iraq and have worsened the country's sectarian divide.

PARTITION 'MIGHT BE ONLY SOLUTION'

General Raymond Odierno, who served as the top US commander in Iraq from 2008 to 2010, told a news conference on Wednesday that the country may ultimately have to be divided up.

Asked if reconciliation between Sunnis and Shi'ites was possible, he said that "it's becoming more difficult by the day" and pointed to a future in which "Iraq might not look like it did in the past".

Questioned on partition, he said: "I think that is for the region and politicians to figure out, diplomats to figure out how to work this, but that is something that could happen."

"It might be the only solution but I'm not ready to say that yet."

Iraq has three main communities that would likely form the basis for the partition of the country if that were to occur: the Kurds, who already have an autonomous region, and the Sunni and Shi'ite Arabs.

Kurds dominate the country's north and Shi'ites the south, while the Sunni Arab population is distributed across western, northern and central Iraq.

But for now, "we have to deal with (ISIS) first and decide what it will look like afterwards," Odierno said.

SIGNATURE ISIS TACTIC

ISIS overran large parts of Iraq in June 2014 and also holds significant territory in neighbouring Syria.

The Iraqi army, which the United States spent billions of dollars to train and equip, performed dismally in the early days of the ISIS offensive.

Baghdad's forces have since regained ground from the militants with backing from a US-led coalition and Iran, but much of the country's west remains outside government control.

Even before the ISIS offensive, bombings targeting civilians in Iraq were a major threat, killing hundreds of people per month.

With militants occupied with fighting elsewhere, the frequency of blasts in Baghdad has declined since ISIS launched its offensive.

But bombings are still ISIS' signature tactic, with the group planting explosives to help defend areas it holds and deploying suicide bombers as part of its offensive strategy.

The Baghdad blast came two days after bombings in Diyala province, northeast of the capital, killed more than 30 people.

A massive suicide attack in the province killed more than 120 last month, one of the deadliest single bombings in Iraq since the 2003 US-led invasion.

On Thursday, Germany said that ISIS had carried out a chemical weapons attack against Kurdish fighters in northern Iraq, causing respiratory problems but no deaths.

ISIS has allegedly used chemical weapons on multiple occasions in Iraq and Syria, but such attacks have been limited and have had less impact than the deadly bombings carried out by the militants.