Attack cuts road linking Baghdad to Kirkuk as al-Qaeda commander is reported killed.
In a separate incident on Sunday, gunmen at a mock checkpoint killed five people and wounded seven others when they opened fire on two minibuses near Baquba.
Diyala is a large religiously and ethnically diverse province which has seen some of the worst violence in Iraq since the US-led invasion in March 2003.
Sectarian killings and attacks by al-Qaeda have occurred regularly in the region, which is a mainly Sunni province – but also has Shia and Kurdish populations.
Around 3,000 extra US troops have been sent to Diyala to combat a recent increase in violence.
Figures released on Saturday showed that nearly 2,000 civilians had been killed in Iraq in the month of May.
May’s death toll has risen by 29 per cent from April and the represents the highest monthly toll since the start of a security crackdown in Baghdad in February.