A car bomb exploded in a produce market in the mainly Shi'ite Iraqi town of Khalis on Thursday, killing 10 people, wounding 25 others and leaving the street strewn with vegetables, body parts and blood.

Authorities dispatched special forces and locked down the town 80 km (50 miles) north of the capital, Baghdad, where the Iraqi government hosted U.S. Vice President Joe Biden for a ceremony to mark the end of U.S. military presence in Iraq.

The remaining 13,000 U.S. troops are due to be out of Iraq in the next few weeks, nearly nine years after the invasion that toppled Sunni dictator Saddam Hussein.

The blast in Khalis left a three-metre (10-foot)-diameter crater and at least ten charred cars and pick-up trucks along with scattered fruit, vegetables and debris, a Reuters photographer at the scene said.

The vehicle, a Kia pick-up, was parked among the other cars, a normal thing in this market, and it was driven by a young man who left it. And just ten minutes later the car blew up, witness Ibrahim al-Temimi said.

Ibrahim, who was unhurt, said his car was destroyed in the blast and security forces immediately secured the scene, trapping survivors at the shattered market.

The blast killed 10 people and wounded 25, said Major Ali al-Temimi of the Khalis police. A physician at the hospital in Khalis, Dr. Hameed Hussein, confirmed the toll.

In a nearby attack on Thursday, gunmen armed with silenced weapons stormed three houses belonging to former members of the government-supported Sunni Sahwa militia, killing eight people and wounding five, police and hospital sources said.

The killings took place in the Sunni town of Buhriz, about 30 km (12 miles) from Khalis. Both towns are in restive Diyala province, an al Qaeda stronghold just east of Baghdad.

The attacks underscored Iraq's fragile security as the United States leaves a rebuilt Iraqi police force and army to cope with a still-lethal al Qaeda-linked Sunni insurgency and Shi'ite militias supported by neighbouring Iran.

Biden arrived in Baghdad late on Tuesday and in meetings with Prime Minister Nuri al-Maliki and other Iraqi leaders hailed a new phase in relations between the two countries, including close security ties.

SECTARIAN WORRIES

While violence has fallen sharply in Iraq since the height of the sectarian bloodbath unleashed by the 2003 invasion, militants still kill scores of people every month in bombings and other attacks. October's civilian death toll of 161 was the highest of the year, according to government figures.

U.S. and Iraqi officials have said attacks may rise as U.S. troops withdraw under terms of a 2008 security pact.

Iraqi security forces are on high alert for attacks against Shi'ites related to the ongoing religious event of Ashura, which commemorates the death of Prophet Mohammad's grandson Hussein at the battle of Kerbala in 680 and defines Shi'ism and its rift with Sunni Islam.

A police source who asked not to be named said the security operations centre for Diyala province sent a special forces units to take control of the bombing scene in Khalis.

The move highlighted mistrust between Iraqi forces. Local officials often accuse police and military leaders of colluding with militants.

The (special) forces dismissed the police of Khalis from the scene because ... this area was supposed to be a secure and well protected area, the source said. And the question is, how

did this car come to be in the market?

(Writing by Jim Loney; Editing by Rosalind Russell)