"Twenty-five people were killed and more than 30 wounded in the attack," said Khusru Kuran, who is also deputy governor of the northern Nineveh province.
The mourners were gathered in Tall Afar for the funeral of Taleb Sayed Wahba, also a KDP official, who was gunned down by insurgents in the nearby city of Mosul on Saturday.
Clashes then broke out when gunmen emerged on the scene of the bombing and prevented ambulances from evacuating the victims before being confronted by army and police forces, Khursu added.
A videotape broadcast by Britain's Sky News television indicated an Australian citizen by the name of Douglas Wood might have been kidnapped in Iraq.
The tape shows an ashen-faced man in his 60s who demands the withdrawal of coalition forces from Iraq, and says he fears for his life.
No official source could confirm that an Australian was missing. In Canberra, Australian officials were working to determine the identity of the man pleading for his life on the tape.
The apparent kidnapping came the same day as Australia's defence minister Robert Hill held talks in Baghdad with new Iraqi Prime Minister Ibrahim Jaafari before visiting Australian troops deployed in the country.
The unannounced visit came shortly before Australian reinforcements were due to arrive to join US-led forces in Iraq.
Five Iraqi civilians - including a young girl - were also killed and 12 wounded in south-east Baghdad when a car bomb exploded as a US military convoy drove by, the official said.
In a second Baghdad car bomb targeting a US military convoy, a child was killed and 10 civilians wounded.
A Baghdad municipal official in charge of the sewage system was also gunned down in his car, while two men working for an Iraqi construction company were also shot dead in Baghdad.