More than 50 people were also wounded after the blast occurred in the mainly Shia city of Kufa, 160km south of Baghdad, as the workers were boarding a minibus close to a Shia shrine.
Policemen arriving at the scene were pelted with stones by protesters, believed to be supporters of a radical Shia cleric Muqtada al-Sadr.
“It is very chaotic. Police are shooting into the air and the crowds are running,” a Reuters reporter said.
The bombing comes a day after gunmen killed 55 people and wounded nearly 60 others in an attack at a market in al-Mahmudiya, 30km south of Baghdad.
Shia worshippers and gatherings of labourers in crowded markets have become a target of Sunni insurgents, who Iraqi and US officials say are intent on causing a civil war between Shia and Sunnis.
Earlier this month, a bomb attack against a bus for Iranian visitors outside the Maytham al-Tammar shrine killed 12 people and wounded dozens, most of them Iranian nationals.
Kufa is close to the mainly Shia city of Najaf.