The blast severely damaged the Shaheen hotel

The bomb was hidden in a vehicle that drove up to the Shaheen hotel at high speed just after dawn.

The hotel, situated on the banks of the Tigris close to the former US embassy, was frequented by westerners.

The blast comes a day after six American troops, two CNN employees and two Iraqi civilians were killed in violence in and around Baghdad.

We are not going to be scared and will not hide as Saddam Hussein did Sami Izara al Majoun Iraqi labour minister

The bomb blew up the front of the hotel at about 0640 local time (0340 GMT).

Black smoke poured from the building and dazed guests emptied onto the streets as rescuers searched the rubble to reach anyone trapped inside.

The Labour Minister, Sami Izara al Majoun - who lives at the hotel - said he was brought out of the burning building by his guards.

"We are not going to be scared and will not hide as Saddam Hussein did," he told reporters.

Ambulance markings

Police said at least three Iraqis including the driver of the vehicle had been killed in the blast, which also hit a police post across the street. At least 10 people were injured.

But Reuters news agency quoted a South African Foreign Ministry spokesman as saying that a South African was among the dead and four others had been injured.

In pictures: Baghdad blast

Ronnie Mamoepa said they had been working for a security company.

Witnesses said that the vehicle which appeared to contain the bomb had the markings of an ambulance.

The hotel is said to be popular with foreign business people.

US military forces sealed off the area in the Karrada district as rescuers searched for people trapped in the rubble.

On 1 January, eight people were killed when a car bomb tore through a restaurant in Karrada.

Bloodshed

Hours before the latest blast, three US soldiers and two Iraqi civilians died when a roadside bomb hit an army convoy in Khaldiya, west of Baghdad.

Another roadside bomb killed three US soldiers near Iskandariya, south of the Iraqi capital.

The two CNN employees died in a drive-by shooting, on the southern outskirts of Baghdad.