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Smoke was seen rising on Monday near the Green Zone compound where the interim Iraqi government of Prime Minister Iyad Allawi and the US embassy are.
Allawi was not in the area at the time of the blast, said officials in the prime minister's office.
US and Iraqi troops sealed off the area and helicopters buzzed overhead.
Earlier this month, a car bomber targeted the same offices of Allawi's party. Four people were killed and 25 injured in that attack.
Fighters targeting US-led troops and Iraq's interim government have mounted frequent car bomb attacks and ambushes against Iraqi security forces in the run-up to the country's 30 January elections.