Iraqi forces regained ground on Tuesday from Islamic State in the strategic town of Qayyara near the terrorist group's stronghold of Mosul, a senior army commander said.

Backed by US-led air forces, the Iraqis took control of the town's oil refinery and several government buildings, Nejm al-Jabouri, who commands the army's operation in the area, told dpa.

But the forces' progress in Qayyara, located around 60 kilometres south of Mosul, has been slowed down by Islamic State's brand tactic of suicide car bombs, according to al-Jabouri.

Eighteen government soldiers were killed in a suicide car bombing in Qayyara on Tuesday, al-Jabouri said.

The bombing targeted anti-terrorism personnel during a mopping-up campaign against the militants in the centre of the town, he added.  

"The battle for Qayyara is a street war raging in an area of the town where there are tens of thousands of civilians," he said.

A senior Islamic State commander was killed during the fighting, Iraqi website Alsumaria News reported, citing an unnamed security official.

"Daesh's military commander in Qayyara, Abul Fetouh al-Shishani, was killed when the forces stormed the town," the official said, using an Arabic acronym for Islamic State.

Al-Shishani belongs to the inner circle of Islamic State's leader, Abu Bakr al-Baghdadi, according to the official.

The report could not be independently verified.

Earlier on Tuesday, government forces stormed the centre of Qayyara as part of a campaign aimed at setting the scene for the long-awaited onslaught to recapture Mosul.

The recapture of Qayyara would deliver military and economic setbacks to the al-Qaeda splinter group.  

Qayyara is seen as the launch pad for the retaking of Mosul, Iraq's second-largest city, which has been under Islamic State control since mid-2014. Qayyara has a major oil field.

Islamic State has generated revenues from illegal oil sales in Iraq and neighbouring Syria.  

Iraqi Prime Minister Haider al-Abadi has repeatedly vowed to "liberate" Mosul from Islamic State.

The radical group has in recent months suffered several military setbacks and lost ground in Iraq, Syria and Libya in North Africa.

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