The incident occurred in the evening when the terrorists attacked a civilian car outside a village near the town of Khalis, about 70 kilometers northeast of Baghdad, according to Udai al-Khadran, the mayor of the town.
Later, the militants opened fire on villagers who had gathered near the car, according to al-Khadran.
Iraqi security forces rushed to the scene and carried out a search for the attackers, a provincial security source told Xinhua.
Iraqi Prime minister Mohammed Shia' al-Sudani, also the commander-in-chief of the Iraqi forces, sent a high-ranking delegation from the Diyala Operations Command to investigate the attacks, he said on condition of anonymity.
Over the past months, Iraqi security forces have conducted operations against the terrorists to crack down on their intensified activities.
The security situation in Iraq has been improving since the defeat of Daesh in 2017.
However, its remnants have since melted into urban centers, deserts, and rugged areas, carrying out frequent guerilla attacks against security forces and civilians.