At least 11 civilians were killed and dozens wounded late on Tuesday when ISIS militants attacked a remote village north-east of Baghdad, security officials in the capital and Diyala province told The National.
The extremists attacked Al Rashad village outside the city of Muqdadiya in Diyala, the officials said.
At least 25 civilians were wounded and the number of deaths is expected to rise.
Security forces and government-sanctioned paramilitary troops have been sent to the area.
Iraqi President Barham Salih denounced the "cowardly terrorist" attack and called for increasing efforts to chase down ISIS cells.
The attack is a "villainous attemp to destabilise the country", Mr Salih said on Twitter.
"It reminds us with the necessity to close ranks, support our security forces, bridge the gaps, not to underestimate Daesh [ISIS] threats and to continue the national efforts to eliminate its remnants in the region."
Iraqi Prime Minister Mustafa Al Kadhimi vowed revenge.
“We will chase them wherever they are whether inside our outside Iraq,” Mr Al Kadhimi said on Twitter. “The crime in Muqdadiya will not go unpunished."
Dozens of people gathered outside Muqdadiya hospital and its morgue to collect the bodies, images shared on social media and local media outlets showed.
A group of men loaded a body covered with a white sheet into a pick-up truck as at least four ambulances passed by.
In another video, a number of bodies lay under sheets outside the morgue as women wailed.
The extremist group held much of northern and western Iraq from mid-2014 until government forces supported by a US-led global anti-ISIS coalition and Iraqi militias regained the territory in late 2017.
But ISIS cells still carry out sporadic attacks in remote areas and in Baghdad.
In January, two suicide bombers killed at least 32 people and wounded 110 in a busy commercial area near Baghdad's Tayaran Square.
Six months later, a suicide bomber blew himself up in a crowded outdoor market in Baghdad's eastern district of Sadr City, killing at least 30 and wounding dozens.