Iraqi forces broke a months-long siege by jihadist fighters of the country's largest oil refinery Saturday as the top US officer flew in to discuss the expanded war against the Islamic State group.

Ousting IS fighters from around the refinery would mark another significant achievement for Baghdad, a day after pro-government forces retook the nearby town of Baiji.

"Iraqi forces... reached the gate of the refinery," the governor of Salaheddin province, Raad al-Juburi, told AFP.

Three officers confirmed that Iraqi forces had reached the refinery, 200 kilometres (120 miles) north of Baghdad, where security forces have been encircled and under repeated attack since June.

The new success for Iraqi forces came a day after they recaptured nearby Baiji, the largest town they have taken back since IS-led militants swept across Iraq's Sunni Arab heartland in June.

Fully clearing the Baiji area of jihadist fighters would further boost Baghdad's momentum and cap a week which also saw pro-government forces retake a major dam.

A joint operation by the army and Shiite militia earlier this week wrested back the Adhaim Dam in the eastern province of Diyala.

A breakthrough preliminary deal reached on Thursday between the federal government and the autonomous Kurdish region on long-standing budget and oil disputes also raised the prospect of increased coordination in the fight against IS.

The group on Thursday released an audio recording purportedly of its chief, Abu Bakr al-Baghdadi, after rumours that air strikes may have killed or wounded him.

The IS group has had most of the initiative, both on the ground and in the propaganda war, in recent months.

But the man said to be Baghdadi seemed at pains to reassure his followers and the lack of video failed to dispel speculation he might still have been wounded.

- Next phase -

America's top military officer, General Martin Dempsey, arrived in Iraq for talks on the the further expansion of military operations against the jihadists.

A US-led coalition is carrying out air strikes against IS jihadists in both Iraq and Syria, while Washington has announced plans to increase the number of its military personnel in the country to up to 3,100.

Dempsey was to hold talks with "Iraqi political and security officials on (the) next phase of the campaign to defeat (IS)," Brett McGurk, the number two US envoy for the coalition battling the jihadist group, said on Twitter.

The US and other governments have pledged trainers and advisers to aid Iraqi security forces in their battle against IS.

American personnel are assessing possible deployment sites in Iraq, including Al-Asad Air Base in Anbar province, a key area that stretches from the borders with Syria, Jordan and Saudi Arabia to the western approach to Baghdad.

The operation to retake Baiji began more than four weeks ago when security forces and pro-government fighters began advancing towards the town from the south, slowed by bombs militants had planted on the way, and finally entered the town on October 31.

The huge refinery once produced 300,000 barrels a day, accounting for half of the nation's needs in refined oil products.

It is also on the road linking the two largest cities under jihadist control, Mosul and Tikrit.

Washington has repeatedly stated that it will not deploy "combat troops" to Iraq, but Dempsey said on Thursday that sending out advisers alongside Iraqi forces was something that "we're certainly considering."

As federal forces, Kurdish peshmerga, Sunni tribesmen and Shiite militia battle IS on several fronts, car bomb blasts in Baghdad continue to take a near-daily toll.

At least 17 people were killed in two explosions in northwestern neighbourhoods of the capital.