Iraqi television said it could have been caused by a US cruise missile.
But American military bosses said they had no details yet as to what caused the attack, and suggested it may have been an Iraqi missile which had gone wrong.
This comes just two days after Iraqis said 14 people died after a US attack on another Baghdad market.
Battles are taking place throughout Iraq as the coalition forces head towards Baghdad.
There's also been fighting in Iraq's second-largest city, Basra.
UK military officials say some of Saddam Hussein's closest fighters have opened fire on civilians who are trying to flee Basra, which has a shortage of water, food and medicine since the war broke out.
Other main points:
- The first ship carrying aid has docked in the port of Umm Qasr. It was delayed because mines were found in the sea
- Bombs continued to be dropped on Baghdad during the day, after another night of raids on the capital
- Thousands more US troops are moving in to join the battle for the southern Iraqi city of Nasiriya, backed by heavy artillery
- The US plans to double the number of troops in Iraq to about 200,000 in the next month, US officials said