The last deadly suicide bombing in the capital killed at least 27 people in January 2018. There was no immediate claim of responsibility.
In Thursday morning's attack, the first bomber rushed into the market and gathered a crowd around him by claiming to feel sick, an interior ministry statement said. He then detonated an explosive belt, the Interior Ministry said in a statement.
Ali al-Bayati, a member of the Iraqi High Commission for Human Rights, told Middle East Eye: "According to our long experience with terrorist attacks it is IS mostly, and it indicates risky development in the capacity of such groups as it is targeting the capital now".
Just three days ago, seven coordinated attacks in Kirkuk, 150 miles north of Baghdad, left at least 24 people dead and 89 injured.
The second man set off his bomb as people carried victims of the first blast.
An AFP photographer at the scene said security forces had cordoned off the area, where blood-soaked clothes were strewn across the muddy streets and paramedics were rushing to take away the casualties.
After the Islamic State's official defeat here in 2017, the United States is in the process of drawing down its troop presence to 2,500, a lot of them in an advisory capacity, as the Iraqi military takes the lead on what remains of the fight.
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Such violence was commonplace in Baghdad during the sectarian bloodletting that followed the US-led invasion of 2003 and later on as IS swept across much of Iraq and also targeted the capital.
But the group has rarely been able to penetrate the capital since being dislodged by Iraqi forces and the US-led coalition in 2017.
The attack yesterday comes as Iraqis prepare for an election, an event which is often preceded by bombings and assassinations.
They are mainly in charge of training, providing drone surveillance and carrying out air strikes while Iraqi security forces handle security in urban areas.
Pope Francis, who hopes to visit Iraq in March, said he was "deeply saddened" by the "senseless" suicide bombings in Baghdad.
Prime Minister Mustafa al-Kadhimi had originally set this year's general election for June, almost a year ahead of schedule, in response to widespread protests in 2019.
Last year, then US President Donald Trump ordered the withdrawal of half the American troops deployed in Iraq, saying he had confidence in the ability of local forces to prevent a resurgence of IS.
The government recently announced that the planned vote would be rescheduled from June until October in order to give authorities more time to register voters and new parties.