The attack in Muqdadiya, 80 km (50 miles) northeast of Baghdad follows the deadliest bombing inside the capital so far this year, which left 78 people dead in a Shi'ite district on Sunday.
Security officials and police in Diyala said the target of the attack was two local commanders of the Hashid Shaabi umbrella group of Shi'ite militias who were attending the funeral ceremony for one of their relatives.
"The suicide attacker approached the local Hashid commanders and then blew his vest up, killing both with many others," said one police major on condition of anonymity. A further 55 people were wounded, the sources said.
There was no immediate claim of responsibility for the bombing, but attacks on Shi'ite Muslims are often claimed by ISIS terrorists who control large parts of north and western Iraq.
Iraqi officials declared victory over the insurgents in Diyala a year ago, but ISIS has remained active. The Badr Organisation has established itself as the ascendant militia in the region after rolling back the insurgents.
Security officials and witnesses say the situation inside Muqdadiya is very tense, with dozens of Shi'ite militia members deployed in the streets with no presence of the security forces.
Militia elements have been accused of attacking Sunni mosques and residents in Diyala following similar bombings in January, but the groups have denied the allegations and blamed ISIS.
© Thomson Reuters 2016
