The bomb there exploded just before noon in a crowded area.
Most of the dead were women and children and many of the bodies are said to be too badly burned to be identified.
Witness Abu Ali said: "I saw cars on fire, burned bodies and damaged shops with shattered glass everywhere."
There were so many wounded that ambulances struggled to get them all to hospital.
Baquba, the capital of Diyala province, has been an insurgent stronghold, where militants linked to al-Qaeda are said to have regrouped after being driven away from Baghdad.
The kebab shop attack in Ramadi, the capital of Anbar province, was carried out by a suicide attacker, police said. There were unconfirmed reports that a second attacker was arrested before he could detonate his bomb.
Spate of attacks
Anbar was once the heart of Iraq's insurgency.
In contrast to Diyala, the region has seen a sharp decline in violence as Sunni tribal leaders have sided with American and Iraqi government forces against al-Qaeda.
Fresh fighting near Baghdad's Sadr City also left a number of casualties
The attack in Baquba was one of the most deadly for months in Iraq, where the US surge strategy has succeeded in reducing the number of deaths.
However, there have been several attacks already this week. At least 17 people were killed in two bomb attacks near Mosul on Monday, including one which killed 12 members of the Kurdish Peshmerga security force, now part of the Iraqi army, near the Syrian border.
The attacks come as US and Iraqi forces continue their offensive against Shia militias in Baghdad and further south.
The US military said it had killed six militants earlier on Tuesday in an engagement with gunmen near Baghdad's main Shia militia stronghold of Sadr City.
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