BAGHDAD (Reuters) - A car bomb claimed by Islamic State in the eastern Iraqi city of Baquba killed at least 16 people on Monday and wounded 54 others near a bakery close to the city center, police and hospital sources said.

The Amaq news agency, which supports Islamic State, said a suicide bomber had targeted Shi’ite Muslim militia fighters in the provincial capital of Diyala, a mixed Shi’ite and Sunni Muslim area bordering Iran.

The sources said many of the fatalities were children eating at a nearby restaurant.

Iraqi officials declared victory over Islamic State in Diyala more than a year ago, after security forces and Shi’ite militias drove them out of towns and villages there. But the insurgents have remained active and militia elements have been accused of abuses against Sunni residents.

The fight against Islamic State has exacerbated a long-running sectarian conflict in Iraq, mostly between the Shi’ite majority and the Sunni minority. Bombings in Baquba and a nearby town in January set off a string of apparently retaliatory attacks against Sunnis.

Sectarian violence also threatens to undermine efforts by Prime Minister Haider al-Abadi, a moderate Shi’ite Islamist, to dislodge the militant group from areas in the north and west that they seized in 2014.