A car bomb exploded in a livestock market in Iraq's southern Babil province on Thursday, killing 12 people, wounding 40 and shattering a peace that had held in the area for some time, police said.

The blast in Hamza, a mostly Shi'ite Muslim town 130 km (80 miles) south of Baghdad, occurred in a region that has been relatively quiet for months amid a general decline across Iraq in the violence unleashed by the 2003 U.S.-led invasion. Officials said they suspected it to be the work of militants linked to feuding local Shi'ite Muslim politicians, some of whom are unhappy about the results of Jan. 31 provincial elections.

"This area used to see a lot of terrorist attacks but things were settling down," said eyewitness Ali al-Sultani, whose brother was wounded in the blast. "I saw human flesh and pieces of dead sheep flying everywhere."

Bloodshed in Iraq has fallen to five-year lows, but militants can still carry out devastating bomb attacks.

"We were shocked by this terrorist act," said town council member Ibrahim al Taie. "Here, there are only poor people trying to earn an honest living. We blame the security forces for (failing to stop) this."

Babil province has a mixed Sunni Arab and Shi'ite population, communities that turned on each other in a wave of sectarian violence that killed tens of thousands.

The Sunni Islamist al Qaeda group favours high profile attacks like bombing crowded places to maximise civilian casualties, but security forces said this town was largely free of al Qaeda.

Security sources said they thought the bomb was planted by militants with links to local politicians unhappy about the elections, in which Prime Minister Nuri al-Maliki's allies won seats from Shi'ite rivals, the Supreme Islamic Iraqi Council.

U.S. troops currently play a low-key role in southern Iraq after handing over the main responsibility for security to Iraqi forces.

As the United States prepares to withdraw combat troops from Iraq by Aug. 31, 2010 and to leave the country completely by end-2011, U.S. and Iraqi forces are racing against the clock to prepare Iraqi military and police to handle all threats.