The car bomb devastated the upmarket Nabil restaurant around two and a half hours before midnight, scattering debris and wrecked cars across the street outside and sparking a blaze.

"Right now the death toll we believe is six to eight with at least 30 walking wounded who were treated at local hospitals," Lieutenant Colonel Peter Jones, the senior US officer at the scene, told Reuters outside the ruined building.

"It was an indiscriminate targeting of Iraqi individuals as they were going to celebrate New Year."

The wounded included three foreign journalists with the Los Angeles Times.

Jones said the blast was caused by a car bomb parked next to the restaurant.

The streets of Baghdad were mostly deserted when 2004 began. Most people rushed home after the restaurant bomb blast reverberated through the city center, rattling windows of buildings more than a mile away.

US commanders in Iraq had feared guerrillas would launch attacks over the New Year period to send a message that they would press on with their campaign to drive out occupying troops despite the capture of Iraqi dictator Saddam Hussein.