The operation to retake the town of Tal Afar, west of Mosul, from the militant Islamic State (IS) group began on Sunday morning, Iraq's prime minister said.

Tal Afar and the surrounding area is one of the last pockets of IS-held territory in Iraq after victory was declared in July in Mosul, the country's second-largest city. The town, about 150 kilometres east of the Syrian border, sits along a major road that was once a key IS supply route.

“The city of Tal Afar will be liberated and will join all the liberated cities,” Iraqi Prime Minister Haider al-Abadi said in an address to the nation broadcast on state television early on Sunday.

The prime minister said his message to IS was: “You either surrender or die.”

Iraq's militiamen largely stayed out of the operation to retake Mosul, about 80 kilometres to the east, but have vowed to play a bigger role in the battle for Tal Afar, which was home to Turkmen before it fell to IS. The militias captured Tal Afar's airport, on the outskirts of the town, last year.

Their participation in the coming offensive could heighten sectarian and regional tensions.

A stepped up campaign of airstrikes and a troop buildup has already forced tens of thousands to flee Tal Afar, threatening to compound a humanitarian crisis sparked by the Mosul operation.

Some 49,000 people have fled the Tal Afar district since April, according to the United Nations. Nearly a million people remain displaced by the nine-month campaign to retake Mosul.