Close to 25,000 people fled the Iraqi city of Ramadi after it was attacked by Islamic State militants and most of them headed towards Baghdad, the United Nations said on Monday.

UN and other aid agencies have begun distributing food, water and medical supplies as well as setting up temporary camps and latrines, the UN Office for the Coordination of Humanitarian Affairs in Iraq said.

However, funds for aid operations in Iraq were running out and aid stocks were almost gone, it said.

Ramadi fell to the militants at the weekend and those fleeing were thought to be escaping from Islamic State for a second time, having been among 130,000 who fled from the western Iraqi city in April.

"Thousands of families who had fled earlier had returned to their homes in Ramadi, when fighting again broke out, forcing them to flee a second time," the UN statement said.

"Nothing is more important right now than helping the people fleeing Ramadi. They are in trouble and we need to do everything possible to help them," the UN Humanitarian Coordinator in Iraq, Lise Grande, said in the statement.

"Thousands of people had to sleep in the open because they didn't have places to stay. We would be able to do much more if we had the funding."

UN agencies and other aid organisations are giving life-saving assistance to more than 2.5 million displaced people and refugees in Iraq, but funding is nearly exhausted and 56 health programmes will have to close by June, the statement said.

"In July, the food pipeline will break," it said.

Shi'ite militia fighters arrived near Ramadi on Monday as Baghdad moved to retake the city. – Reuters