The bomb detonated during the morning rush hour at a checkpoint near the 14 July bridge over the River Tigris, the BBC reported.
Several Western embassies are located in the area formerly known as the Green Zone — now the International Zone.
"I was on my way to enter the Green Zone when the blast happened. I was wounded in my shoulder and I'm in hospital now," Habib al-Turfi, a Shi'ite member of parliament, told Reuters.
Two of the seven killed were soldiers, the sources said.
"Cars were lining up waiting to be searched at the checkpoint that leads to the Green Zone and suddenly a speeding car exploded nearby," said one police source whose patrol was stationed near the scene of the attack.
"Some people died inside cars and I saw two soldiers lying on the ground. We immediately closed the area."
Owing to the nearly daily attacks at the height of the war in Iraq, in 2006 and 2007, the Green Zone is among the most heavily fortified areas in Iraq, Agence France-Presse reported.
It is surrounded by concrete blast walls and guarded with US-made Abrams tanks.