Baghdad: Islamic State launched a major counter-attack on the city of Kirkuk on Friday as Iraqi and Kurdish forces pursued operations to seize territory around Mosul in preparation for an offensive on the extremist group's last major stronghold in Iraq.

Islamic State's assault on Kirkuk, which lies in an oil-producing region, killed six members of the security forces and two Iranians who were part of a team carrying out maintenance at a power station outside the city, a hospital source said.

Crude oil production facilities were not targeted and the power supply continued uninterrupted in the city. Kirkuk is located east of Hawija, a pocket still under the control of Islamic State that lies between Baghdad and Mosul.

With air and ground support from the US-led coalition, Iraqi government forces captured eight villages south and south-east of Mosul. Kurdish forces attacking from the north and the east also captured several villages, according to statements from their respective military commands overnight.

The offensive that started on Monday to capture Mosul is expected to become the biggest battle fought in Iraq since the US-led invasion in 2003.

The United Nations says Mosul could require the biggest humanitarian relief operation in the world, with worst-case scenario forecasts of up to a million people being uprooted.

About 1.5 million residents are still believed to be inside Mosul, and Islamic State has a history of using civilians as human shields.

The fighting has forced 5640 people to flee their homes so far from the vicinity of the city, the International Organisation for Migration said late on Thursday.

A US service member died on Thursday from wounds sustained in an improvised explosive device blast near Mosul.

Roughly 5000 US forces are in Iraq. More than 100 of them are embedded with Iraqi and Kurdish Peshmerga forces, advising commanders and helping them ensure coalition air power hits the right targets, officials say.

However, the Kurdish military command complained that air support wasn't enough on Thursday.

"Regrettably a number of Peshmerga have paid the ultimate sacrifice for us to deliver today's gains against ISIL. Further, Global Coalition warplane and support were not as decisive as in the past," the Kurdish command said in a statement.

Prime Minister Haidar al-Abadi, addressing anti-Islamic State coalition allies meeting in Paris via video link, said the offensive was advancing more quickly than planned.

Islamic State denied that government forces had advanced. Under the headline "The crusade on Nineveh gets a lousy start," the group's weekly online magazine Al-Nabaa said it repelled assaults on all fronts, killing dozens in ambushes and suicide attacks and destroying dozens of vehicles including tanks.

In Kirkuk, Islamic State attacked several police buildings and a power station in the early hours of Friday and some of the attackers remained holed up in a mosque and an abandoned hotel.

The militants also cut the road between the city and the power station 30 kilometres to the north.

At least eight militants were also killed, either by blowing themselves up or in clashes with the security forces, security sources said. Kurdish forces had dislodged the militants from all the police and public buildings they had seized before dawn, they said.

Kurdish NTV TV footage showed machine gun fire hitting a drab two-floor building that used to be a hotel, and a car burning in a nearby street.

Islamic State claimed the attacks in online statements, and authorities declared a curfew in the city where Kurdish forces were getting reinforcements.

Kurdish Peshmerga fighters took control of Kirkuk in 2014, after the Iraqi army withdrew from the region, fleeing an Islamic State advance through northern and western Iraq.

Reuters