The explosives-laden car was parked in the centre of the commercial area in the town of Bathaa, according to police.
No one has yet claimed responsibility for the attack, but the US military has warned that Sunni insurgents could be expected to try to foment sectarian violence in a bid to upset security gains ahead of the US withdrawal.
Officials gave conflicting death tolls on Wednesday, as is common in the chaotic aftermath of bombings in Iraq.
They also faced the difficulty of gathering information from a comparatively remote small town.
The head of the security committee for the surrounding Dhi Qar province said 29 people were killed and 55 wounded, including five in critical condition.
He also said a wounded man was under investigation because local residents claimed he was a stranger in the area.
He stressed nobody had been charged, but the reports reflected the tight-knit nature of the small tribal community in Bathaa.
An Interior Ministry official, speaking on condition of anonymity because he's not authorised to release the information, put the death toll at 28.
A spokesman for the Nasiriyah hospital said 35 people were killed and 45 wounded.
It is the deadliest bombing to hit the Nasiriyah area since November 12, 2003, when a suicide truck bomber attacked the headquarters of Italian forces stationed there, killing more than 30 people.
The blast is the latest in a series of high-profile explosions that have raised concerns about a resurgence of violence as the US military faces a June 30 deadline to withdraw from urban areas in Iraq.
The area has been the site of past violence - mainly fierce internal fighting between Shiite militia factions before a cease-fire took hold.
But such bombings, which are the signature attacks of al-Qaida in Iraq, have been relatively rare.
Authorities said they had increased security at the main entry points to the province and in the Nasiriyah city centre to prevent the possibility of another bombing.
The US military said Iraqi forces had secured the bombing site.
Persistent violence as the Americans begin to withdraw has raised new questions about the readiness of Iraqi forces to take over their own security.
A US-Iraqi security pact that took effect on January 1 requires all American forces to pull back from urban areas by the end of this month and from the entire country by 2012.