The group had all been passengers on a bus passing through Anbar province, long a stronghold of Sunni insurgents and Al-Qaeda's front group in Iraq, when their vehicle was stopped by gunmen at 0000 IST.
"Gunmen dressed in military and police uniforms set up a fake checkpoint, made the passengers get off the bus, separated the men from the women and children before killing the men and fleeing," a Karbala official said, speaking on condition of anonymity.
"All of the bodies are now in the Karbala mortuary," he added.
A mortuary official, who also declined to be named, confirmed the account. The bus was one of the daily services departing from Karbala carrying Shiite pilgrims bound for Syria.
On its way to Iraq's western neighbour, it must pass through the desert region of Anbar. Earlier, police General Haider Rzayj said the gunmen had stopped the bus, which he said was coming from Syria, and killed the men before laying their bodies on the ground.
The attack took place about 300 kilometres west of Baghdad, in a sector under the control of the Iraqi army.
Since the US-led invasion of 2003, the mainly Sunni province of Anbar has been a stronghold of Al-Qaeda, whose members have killed numerous Iraqis and foreigners travelling the roads to Jordan and Syria.