A triumphant Iraqi Prime Minister Haider al-Abadi declared on Monday that the coming year would see his forces defeat Islamic State, after his military achieved its first major victory since collapsing in the face of the fighters 18 months ago.

Iraqi forces flew the national flag above the main government complex in Ramadi earlier in the day, declaring they had recaptured the city, a provincial capital west of Baghdad that fell to Islamic State fighters in May.

"2016 will be the year of the big and final victory, when Daesh's presence in Iraq will be terminated," Abadi said in a speech broadcast on state television, using an Arabic acronym for Islamic State that the hardline group rejects.

"We are coming to liberate Mosul and it will be the fatal and final blow to Daesh," he added. Mosul, northern Iraq's main city, is by far the largest population centre in the self-proclaimed caliphate Islamic State rules in Iraq and Syria.

The army's apparent capture of Ramadi, capital of Anbar province in the Euphrates River valley west of Baghdad, marks a major milestone for US-trained forces that crumbled when Islamic State fighters charged into Iraq in June 2014. In previous battles since then, Iraq's armed forces operated mainly in a supporting role beside Iranian-backed Shi'ite militias.

Soldiers were shown on state television on Monday publicly slaughtering a sheep in an act of celebration.

Gunshots and an explosion could be heard as a state TV reporter interviewed other soldiers celebrating the victory with their automatic weapons held in the air. A separate plume of smoke could be seen nearby.

US President Barack Obama, vacationing in Hawaii with his family, received an update on Monday on the Iraqi forces' progress in Ramadi, the White House said.

"The continued progress of the Iraqi Security Forces in the fight to retake Ramadi is a testament to their courage and determination, and our shared commitment to push ISIL out of its safe-havens," the White House said in a statement, using an acronym for Islamic State.

General Lloyd Austin, the head of US Central Command, which is responsible for US troops in the Middle East and Afghanistan, said that, together with other Islamic State losses in Iraq and Syria, "the seizure of the Government Center clearly demonstrates that the enemy is losing momentum as they steadily cede territory."

American officials said the US-led coalition backing Iraqi forces had carried out more than 630 air strikes in the area over the past six months and provided training and equipment.

The US-led coalition, which includes major European and Arab powers, has been waging an air campaign against Islamic State positions in both Iraq and Syria since a third of Iraqi territory fell to the fighters in mid-2014.

The Iraqi army was humiliated in that advance, abandoning city after city and leaving fleets of American armoured vehicles and other weapons in the militants' hands. One of the main challenges of the conflict since then has been rebuilding Iraq's army into a force capable of capturing and holding territory.

Baghdad has said for months that it would prove its forces' rebuilt capability by rolling back militant advances in Anbar, a mainly Sunni province encompassing the fertile Euphrates River valley from Baghdad's outskirts to the Syrian border.

After encircling the provincial capital for weeks, Iraqi forces launched an assault to retake it last week and made a final push to seize the central administration complex on Sunday. Their progress had been slowed by explosives planted in streets and booby-trapped buildings.

Security officials said the forces still need to clear some pockets of insurgents in the city and its outskirts.

KEEPING CONTROL

Authorities gave no immediate death toll from the battle for the city. They have said most residents were evacuated before the assault.

Finance Minister Hoshiyar Zebari told Reuters the capture of Ramadi was "a done deal" but said the government had to do more to rebuild the city and encourage displaced people to return.

"The most important thing is to secure it (Ramadi) because Daesh can bounce back," he said in an interview in Baghdad.

Iraq's army took the lead in the battle for Ramadi, with the Shi'ite militias prominent in other campaigns held back from the battlefield to avoid antagonising the mainly Sunni population. Washington had also expressed reluctance about being seen as fighting alongside the Iranian-backed groups.

Abadi took office in September 2014 after the Islamic State advance, pledging to reconcile Iraq's warring sectarian communities. While he initially swung behind Shi'ite militias to help halt Islamic State's onslaught, he has since tried to implement reforms to reduce the power of sectarian parties, angering many political leaders.

Islamic State's members, also known by the acronym ISIS, are ultra-hardline Sunnis who consider all Shi'ite Muslims to be apostates. They swept through northern and western Iraq in June 2014 and declared a "caliphate" to rule over all Muslims from territory in both Iraq and Syria, carrying out mass killings and imposing a draconian form of Sunni Islam.

Since then, the battle against the group in both Syria and Iraq has drawn in most global and regional powers, often with competing allies on the ground in complex multi-sided civil wars.

The Baghdad government says the next target after Ramadi is Mosul. Washington had hoped that a potentially decisive battle for that city would take place in 2015 but that effort was pushed back after the fighters seized Ramadi in May.

Abadi's government plans to hand over Ramadi to local police and a Sunni tribal force once it is secured, to encourage Sunnis to resist Islamic State.

Such a strategy would echo the US military's "surge" campaign of 2006-2007, which relied on recruiting and arming Sunni tribal fighters against a precursor of Islamic State. Anbar, including Ramadi, was a major focus of that campaign at the height of the 2003-2011 US war in Iraq. – Reuters