Four gunmen charged into a shopping mall in eastern Baghdad on Monday after a car bomb exploded outside, killing at least seven people, two police sources said.
The sources said it was not clear if the assailants, who may have been wearing suicide vests, had killed anyone or taken hostages at the Jawaher mall in the predominately Shi'ite Muslim district of Baghdad Jadida.
Seven people were killed and 27 others wounded in the car bomb blast, police and medical sources said.
State television said security forces were surrounding the site of "a terrorist attack" in Baghdad Jadida, citing an interior ministry spokesman.
There was no immediate claim of responsibility for the attack, but Islamic State militants controlling large swathes of Iraq's north and west regularly target Shi'ite districts and security forces in the capital and elsewhere.
Iraq is also gripped by a sectarian conflict mostly between Shi'ites and Sunnis that has been exacerbated by the rise of the ultra-hardline Sunni insurgents of Islamic State.
Earlier in the day, three people were killed and eight others wounded when a car bomb claimed by Islamic State went off near a restaurant in Baquba, 65 km (40 miles) northeast of Baghdad, security and medical sources said.
