At least 114 people have been killed by a massive car bomb in the worst single such incident since the US-led invasion nearly two years ago.
It is the deadliest bombing in Iraq for months
At least 130 others were wounded in the blast in Hilla, 100km (60 miles) south of the capital, Baghdad.
The car, reportedly driven by a suicide bomber, exploded near a queue of people applying for government jobs.
UN Secretary General Kofi Annan condemned the attack "in the strongest possible terms".
He said the only purpose of such "repeated acts of senseless violence" was to "undermine the prospects for a democratic and prosperous Iraq".
He urged all sides to "put aside their differences and work together in a spirit of national reconciliation".
Iraqi insurgents are waging a violent campaign against US-backed authorities, targeting anyone associated with the government.
Death toll 'to rise'
Local police said a suicide car bomb "hit a gathering of people who were applying for work in the security services".
Several people were arrested in connection with the blast, the police said.
Torn limbs, feet and other body parts littered the street after the blast.
29 July 2004: A suicide car bomb kills at least 70 people in a busy street in Baquba
2 March 2004: Co-ordinated attacks outside mosques in Karbala and Baghdad kill more than 170 people and wound dozens more
10 February 2004: A suicide bomb outside a police station in Iskandariya kills 55 people
1 February 2004: A double suicide attack outside Kurdish party offices kill 105 in Irbil
23 August 2003: A car bomb outside a mosque in Najaf kills at least 83 people
19 August 2003: A truck bomb outside UN headquarters in Baghdad kills 22 people
Sources: AP, AFP
Footage showed pools of blood at the scene, with dozens of people helping to put body parts into blankets. Shoes and tattered clothes were piled up in a corner.
"I was lined up near the medical centre, waiting for my turn for the medical exam in order to apply for work in the police," Abdullah Salih, 22, told the Associated Press.
"Suddenly I heard a very big explosion. I was thrown several metres away and I had burns in my legs and hands, then I was taken to the hospital," he said.
Muhsin Hadi, 29, broke his leg in the blast. "I was lucky because I was the last person in line when the explosion took place," he told AP.
The director of the Hilla teaching hospital, Mohammed Dia, told the BBC the explosion was far worse than anything the town had experienced before.
He said the number of dead was likely to rise, partly because some of the injured were in a serious condition, and partly because some of the victims had been blown to pieces.
"All the hospital's rooms, even those used for cardiology, are filled with the wounded," he said.
A medical official told the Reuters news agency that local people had been called on to donate blood and that expert assistance had been requested from further afield.
A spokesman for Iraq's Red Crescent Society said the agency was also sending emergency medicine and doctors to the town.
The attack comes as Interim Prime Minister Iyad Allawi said Iraq's security forces were still unable to take on the insurgency without the help of US troops.
"Iraqis should be able to start taking over more and more security responsibilities very soon," he wrote in the Wall Street Journal.
"But we will continue to need and to seek assistance for some time to come."
Iraqi groups are holding talks over forming a new, Shia-dominated government following last month's general elections.
Hilla is a mainly Shia town, and Sunni militants have been openly striking at Shia targets in an attempt to stir up sectarian strife, says the BBC's Jim Muir in Baghdad.
In another incident, a US soldier was shot and killed in Baghdad on Sunday while manning a traffic checkpoint, the US military says.