IS claims Iraq bombing that kills 16

Sixteen people. including women and children, have died in a suicide car bombing, claimed by IS, in a town north of Baghdad.

The death toll, now 14, in a suicide bombing in an Iraqi town, is expected to rise. (AAP)

A suicide car bombing claimed by Islamic State has killed 16 people including a group of women and children packed into a minibus outside an Iraqi town.

A police officer at the scene said most of the victims died inside their vehicles while waiting at a checkpoint to enter Khalis, about 80km north of Baghdad.

"We still have charred bodies inside many vehicles including a minibus packed with women and children," the police captain said, requesting anonymity.

Amaq, a news agency that supports Islamic State, said the attack had targeted Iraqi troops in Khalis, which is located in the eastern province of Diyala, a mixed Sunni-Shi'ite Muslim area bordering Iran.

Iraq declared victory over the Sunni insurgents in Diyala more than a year ago, but the militants remain active despite holding no significant territory there. Islamic State has stepped up attacks across the country even as it incurs battlefield setbacks in the country's north and west.

Iraqi Prime Minister Haider al-Abadi has come under renewed pressure to improve security since a suicide attack claimed by Islamic State earlier this month killed 292 people in central Baghdad, one of the largest attacks of its kind since the US-led invasion in 2003.

The ultra-hardline militants have lost much of the territory they seized in 2014 and Abadi has pledged to retake this year the northern city of Mosul, the group's de facto capital in Iraq.