(Updates with police saying suicide bomber)

By Mustafa Mahmoud and Sherko Raouf

KIRKUK, Iraq, Oct 28 (Reuters) - A suicide car bomber killed at least seven people on Sunday in a huge explosion that ripped through shops and set cars ablaze in the northern Iraqi oil centre of Kirkuk, police said.

Some 25 people were also wounded in the blast, said Major- General Torhan Abdul-Rahman, deputy police chief of Kirkuk, a volatile city claimed by both Kurds and Arabs that has witnessed regular bomb attacks and shootings.

Another police official put the death toll at eight.

Clouds of dense, black smoke rose into the sky as firefighters, helped by residents, tried to extinguish the flames. Twisted wrecks of cars lay scattered in the street, in front of the blackened ruins of shops.

Crying, Haimen Mahmoud, 28, accosted a friend in the street. "Is Nadhim alive or dead?" he asked. "I don't know," his friend replied. Shocked survivors could be seen on their mobile phones, reassuring loved ones that they were alive.

A police official said 25 shops and 10 cars were destroyed in the explosion, near a bus terminal in the Kurdish area of al-Haseer in northern Kirkuk. Despite the scene of devastation, the death toll was low because many of the shops were closed.

A middle-aged motorist who declined to be identified said the blast shattered the windows of his car. He was slightly wounded by flying glass.

"Kirkuk is not a place to live any more. Wherever you go there are roadside bombs and car bombs. The security forces cannot find a solution for the terrorism," he said.

Kirkuk, which sits on Iraq's northern oil fields, is shared by Kurds, Turkmen, Shi'ite and Sunni Arabs.

Kurds want it to be incorporated into their largely autonomous Kurdistan region, but Arab residents strongly oppose that. A referendum on the issue, due by the end of the year, is expected to be delayed until 2008.

Analysts have warned of a bloodbath unless the international community and the Iraqi government pay more attention to settling the city's disputed status.

Kirkuk's police chief escaped a car bomb attack on his motorcade earlier this month in which seven people were killed and 50 wounded.

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