The long-awaited operation to free Iraq's second city, Mosul, from the Islamic State extremist organization has begun, Prime Minister Haider al-Abadi said early Monday.

"Dear people of Iraq, beloved people of Nineveh province, the hour of victory has come and operations to liberate Mosul have begun," al-Abadi said in a televised address.

Mosul, which is located in Nineveh, is the largest city controlled by the Sunni extremist group, with a population of over 2 million before the conflict.

The battle is expected to be a decisive moment in Iraq's fight against Islamic State, which al-Abadi has vowed will be driven out of the country this year.

The premier, addressing much of his short speech to the residents of Mosul, a majority Sunni city whose citizens of other religions have fled the jihadists, sought to strike a reassuring note.

"Very soon, we will be among you to raise the Iraqi flag ... we have come to rescue you and save you from terror," he said.

Al-Abadi assured citizens of Mosul that only the regular army and police would enter the city, implicitly guaranteeing that the controversial Shiite militias who have played a key role in other government offensives will stay out.

"Soon, God willing, we will meet on Mosul's soil to celebrate its liberation and your salvation together, and we will once again live together - all our religions and all our sects - in equality, loving each other and cooperating with each other," he promised.

Hours before announcing the offensive, al-Abadi met the head of the United Nations refugee agency UNHCR to review plans for receiving civilians displaced by the fighting.

Aid groups have warned of a potential humanitarian crisis, with UNHCR warning that up to 700,000 civilians are likely to flee the city.

There are only 51,000 spaces available in existing refugee camps in the area, according to the Norwegian Refugee Council.

Earlier on Sunday, Iraqi warplanes dropped leaflets over the city seeking to reassure residents about the operation and calling on them to aid the security forces against the jihadis.

Islamic State overran Mosul in mid-2014 at the beginning of a lightning offensive that saw it seize swathes of Sunni Arab northern and western Iraq as Iraqi army and police units collapsed in the face of its onslaught.

It was from Mosul's Great Mosque that the group's leader, Abu Bakr al-Baghdadi, made a rare public speech weeks later, after his organization proclaimed him caliph and said he was entitled to the loyalty of all Muslims worldwide.

Months later, Islamic State launched a genocidal assault on the Yezidi religious minority in the Sinjar district of Nineveh, killing men and older women and taking girls captive as sex slaves.

That, together with its advance towards the Iraqi Kurdish capital of Erbil, led the United States and allies to launch an air campaign that slowly began to reverse its gains.

US President Barack Obama's representative for the campaign against Islamic State, Brett McGurk, wrote on Twitter after al-Abadi's announcement: "Godspeed to the heroic Iraqi forces, Kurdish #Peshmerga, and #Ninewa volunteers. We are proud to stand with you in this historic operation."

Army units, many of which have been reformed and intensively trained by the United States since the defeats of 2014, are in place for the Mosul operation as well as Kurdish Peshmerga troops, local Sunni militias, and the Shiite militias.

Islamic State has suffered a string of losses in recent months at the hands of the increasingly effective Iraqi forces, and has also been steadily losing ground in neighbouring Syria to Kurdish forces and Turkish-backed rebels.

On Sunday it retreated from Dabiq in northern Syria, a key symbolic loss as the militants believed in a prophecy that the small town would be the scene of an apocalyptic battle between Muslims and unbelievers.

Islamic State's ability to hold on to territory seems to be declining, but few observers expect it to easily give up its main Iraqi stronghold.

It has recently been managing its supporters' expectations, claiming that it will not be defeated even if it loses all the major cities it has captured in the two countries.

Analysts have warned that the group's territorial losses are likely to push it to shift its focus from state-building to deadly terrorist attacks such as those it has previously claimed in Baghdad and in Europe.

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