The mid-morning blast was the fourth major attack this year on Iraqi security forces in the northern city of Tikrit, a former hotbed for Sunni insurgents bent on targeting the government and exposing the country's instability.
Salahuddin provincial spokesman Mohammed al-Asi said the explosion went off outside the state-run Rafidain bank where policemen were picking up their monthly pay.
It wasn't known how many policemen were among the dead and wounded. Television footage of the blast showed a huge white mushroom cloud over the two-story bank, followed by thick black smoke.
A car parked nearby was on fire, and firefighters struggled to douse the flames. Iraqi security forces sealed off the area.
Another provincial spokesman, Ali Abdul-Rahman, said at least 12 people were killed and 30 wounded. Tikrit, located 130 kilometres north of Baghdad, has been at the epicentre of deadly strikes on Iraq''s government in the country's north so far this year.
In June, a suicide bomber attacked a mosque filled with Iraqi politicians and policemen while another blew himself up inside the hospital where the wounded were taken, killing a total of 21 people.
In March, gunmen strapped with explosives stormed the provincial council building and held off Iraqi forces for five hours before blowing themselves up. Fifty-six people were killed, including 15 who were shot execution-style in the head.
And in January, a suicide bomber killed 52 people among a crowd of police recruits in Tikrit. The bomber had joined hundreds of people waiting outside a police station to submit applications for 2,000 newly created jobs.
The attacks reflecting the difficulties Iraqi security forces face in protecting their own people from Sunni insurgents still intent on undermining the country's post-Saddam leaders, many of whom are Shiite.
Such violence is all the more troubling because of the approaching year-end deadline for American forces to leave.