The bomber killed Izzedin Salim and six other people as a council convoy was heading into the heavily guarded "Green Zone" headquarters of the US-led authorities in central Baghdad for a meeting just six weeks before the handover.
The blast, which left a one-metre (three-foot) crater in the road, tore through several cars and a crowd of pedestrians lining up at a checkpoint to get into the compound of former Saddam Hussein palaces.
US officials said bombing bore the stamp of al Qaeda figure Abu Musab al-Zarqawi. An Islamic Web site carried a claim of responsibility from an Iraqi group, the "Arab Resistance Group - al-Rashid Brigades".
The bomb contained an artillery shell, like one a suicide bomber used against another Green Zone checkpoint on May 6 and which a group led by al-Zarqawi said it carried out, US officials said.
They also said a small amount of the nerve agent sarin was found in an artillery shell that exploded in Iraq a few days ago, the first announcement of a definitive discovery of any of the weapons of mass destruction on which Washington made its case for war.
Salim, who held the council's rotating presidency, had just spent three days in the northern city of Arbil with UN special envoy Lakhdar Brahimi, who is trying to forge a consensus on an interim government to take office on the handover and lead Iraq to elections in January.
Ghazi Ajil al-Yawar, a Sunni Muslim, takes over the presidency of the council.
Washington says the interim government's powers will be limited and security will be in the hands of US commanders, but some members of the council expected to form its core said Monday's suicide bomb proved they should yield control to the new government.
"The US security plan for Iraq has failed," Ahmad Chalabi told Reuters. "There is no alternative except to adopt a definition of sovereignty that includes full control over the security forces."
Britain, a staunch US ally, said the bomb would not force the coalition out of Iraq.
Fighting between coalition troops and the Mehdi Army has spread since Friday, when US troops pushed onto sacred ground in the holy Shia city of Najaf for the first time to attack militia positions in its ancient cemetery.
The US military calls it a "minor uprising".
But it said on Monday US forces had killed 51 guerrillas in the south, 20 of them in an air strike on insurgents loading and unloading weapons from vehicles.