A powerful blast has shattered a small hotel and houses in central Baghdad.
The hotel would have been a soft target for bombers
The US military says at least 27 people died and 45 were injured when the Mount Lebanon hotel was blown up by a 450-kilo (1,000-pound) car bomb.
US officials say the attack, in the busy Karrada district, was made to cause maximum casualties and bore the hallmarks of an al-Qaeda-related group.
Hours later, a mortar attack on a US logistics base north of Baghdad killed two soldiers and injured six.
In the hotel bombing, a number of foreigners are thought to have been among the victims.
Unconfirmed reports spoke of a number of Egyptians killed and two UK civilians injured.
An Iraqi Interior Ministry spokesman disputed the US death toll and put the number of dead at five.
A US military spokesman
said the attack appeared to have been directed at civilians.
"There were no coalition forces operating in the area at this time, so the coalition was not the one being targeted," he said.
The BBC's Caroline Hawley says that with security arrangements tight around Baghdad's bigger hotels, a smaller one like the Mount Lebanon would have been a soft target.
Bricks, air conditioners, furniture, wires and other debris lay scattered hundreds of metres from the hotel from the force of the explosion.
The blast had sent up a column of fire and a huge plume of smoke into the night sky.
Immediately afterwards, frantic relatives gathered as rescue teams searched for survivors and US military helicopters hovered above.
A witness who spoke to Reuters said he had seen "many, many" bodies.
"I ran down the street and saw many, many people killed," said 30-year-old Abdul Karim. "There were children dead."
Mr Karim said it was a mixed residential area populated by "ordinary families".
Witnesses said children were among the victims and one man was seen cradling the limp body of his young daughter as rescuers moved survivors to ambulances and other available vehicles to take them to hospital.
Husain Ali Kamal, an Interior ministry official in charge of Iraqi security, told the Arab-language al-Jazeera channel that only five people died in the blast.
A White House spokesman said the new attack would not deter efforts towards "democracy, freedom and stability" in Iraq where the US-led coalition is on high alert in the run-up to the first anniversary of the start of the war on Saturday.
The explosion left a crater around seven metres (20 feet) across and 3.5 metres deep in the road outside the hotel.
Iraqi Deputy Interior Minister Ahmed Kadhim said he thought a rocket attack was responsible.
However, US troops said the extent of the damage suggested a car bomb.
"It has to be a car bomb - no rocket could cause that amount of damage," Pfc Heath Balick of the US Army's 1st Armoured Division told AP news agency.
Our correspondent says the blast was so powerful, she dived for cover, despite being based a kilometre away.
A US spokesman said that the bomb used suggested the involvement of an Islamic extremist group such as Ansar al-Islam or followers of suspected al-Qaeda operative Abu Musab al-Zarqawi.