Iraqi forces have made significant progress as they close in on Tal Afar, a town west of Mosul held by the banned Islamic State (IS), the US-led coalition said Monday.

US Army Colonel Ryan Dillon, a coalition spokesman, told The Associated Press that Iraqi forces have retaken 250 square kilometres from the extremist group, though they have not yet pushed into the town itself.

“As we get into the urban areas as we saw in Mosul and Raqqa that's where we'll see the pace slow down, that's where IS have placed their defences,” he said.

US-backed Iraqi forces drove IS from Mosul last month after a gruelling, nine-month campaign to retake the country's second-largest city.

US-allied forces are currently battling IS in the Syrian city of Raqqa, the extremists' de facto capital.

The operation to retake Tal Afar was launched early Sunday. Dillon said most of the territory retaken was in the Kisik junction area to the east of the town.

Tal Afar, about 150 kilometres east of the Syrian border, is in one of the last pockets of IS-held territory in Iraq.

Some 49,000 people have fled the Tal Afar district since April, according to the United Nations, sparking concern the displaced will exacerbate the humanitarian crisis that erupted during the Mosul operation.

Nearly a million people remain displaced by the campaign to retake Mosul.