The blast at the gate to the Imam Hussein mausoleum was the first serious attack in the city in several months, the BBC reported.
Sheikh Abdul Mehdi Karbalai, an aide to Iraq's most senior Shiite cleric, Grand Ayatollah Ali Sistani, was believed to be among the wounded.
The blast came on the first day of campaigning for the January elections. Interim Prime Minister Iyad Allawi officially declared his candidacy.
A Sistani spokesman told the Arabic television network al-Jazeera that the bomb was probably an attempt to assassinate the cleric.
In a similar attack in March, at least 85 people died and 230 were wounded when explosions near Karbala's main mosque targeted Shiites observing a holy ritual.
Voters in Iraq are getting ready to elect a 275-member assembly to appoint a government and draft a constitution.