The unabated violence came as Iraq's dominant Shia continued for another day in their efforts to form a new national unity government, whose top priority will be to work for an end to the instability.
The diplomat, whose name was not given, was visiting his embassy's cultural annex in the upscale Sunni neighbourhood of Al-Mansur when several gunmen burst into the building and seized him, the interior ministry said.
One of his bodyguards, a Sudanese, was wounded in the assault and taken to hospital.
Talks over the formation of a unity government, which sectarian squabbles have blocked for the past five months, were overshadowed throughout the day by violence that claimed the lives of at least 42 Iraqis.
Shia politicians presented a list outlining the make-up of a proposed government and said a cabinet would take shape in the next "24 hours," but a US diplomat said "if I was a betting man, I would not say tomorrow."
A shooting and car bombing at a packed market in Baghdad claimed 23 lives and wounded at least 38 people, officials said.
A group of gunmen pulled up to the market in a pair of minibuses in the Al-Shaab district and opened fire on a bus stop, killing five people, before making their getaway in one of the vehicles.
The other minibus exploded when bystanders came to the aid of the injured, killing another 18.
At least 17 Iraqis were killed in other attacks in and around the capital and two police officers shot dead in the northern oil hub of Kirkuk. A US soldier was killed by a bomb in the south of the capital, the US military said, adding that two soldiers were killed in a similar incident in Balad, north of the capital, the previous day.
Meanwhile, a lawmaker who attended a Shia coalition meeting with prime minister-designate Nuri al-Maliki said a government would be proposed as early as Wednesday but that the appointments of the heads of the coveted security posts would be left for later. "Within the next 24 hours the composition of the government may be announced without naming the defence and interior ministry posts," Shia deputy Hassan al-Sunaid told AFP.