The Islamic State group on Sunday released a video claiming the beheading of US aid worker Peter Kassig in a warning to Washington as it prepares to send more troops to Iraq.

The same video showed the gruesome simultaneous beheadings of at least 18 men described as Syrian military personnel, the latest in a series of mass executions and other atrocities carried out by IS.

In the undated video, a man who appears to be the same British-accented fighter who beheaded previous Western hostages stands above a severed head.

"This is Peter Edward Kassig, a US citizen of your country," the black-clad masked executioner says, urging US President Barack Obama to send more troops back to the region to confront IS.

"Here we are burying the first American crusader in Dabiq, eagerly waiting for the remainder of your armies to arrive," the militant said, referring to a northern Syrian town.

There was no immediate confirmation from his family of the death of Kassig, a former US soldier who risked his life to provide medical treatment and aid to those suffering from Syria's civil war.

Kassig would be the fifth Western hostage killed by IS in recent months, after two US reporters and two British aid workers.

British Prime Minister David Cameron said he was "horrified" by Kassig's "cold-blooded murder".

"ISIL have again shown their depravity. My thoughts are with his family," Cameron wrote on Twitter, using an alternative name for IS.

The 26-year-old, who converted to Islam and took the first name Abdul-Rahman, was taken captive last year and was threatened in an October 3 video showing the beheading of British aid worker Alan Henning.

The claim of Kassig's killing came as Washington prepares to double its military personnel in Iraq to up to 3,100 as part of the international campaign it is leading against IS.

Assad loyalists also beheaded

The Sunni Muslim extremist group has seized control of large parts of Iraq and Syria, declared a "caliphate" and imposed its brutal interpretation of Islamic law.

The video released on Sunday also showed a highly choreographed sequence of the beheadings of at least 18 prisoners said to be Syrian officers and pilots loyal to President Bashar al-Assad.

The video shows fighters marching the prisoners past a wooden box of long military knives, each taking one as they passed, then forcing them to kneel in a line and decapitating them.

Kassig's parents had pleaded for his release, highlighting his humanitarian work and conversion to Islam.

Kassig had founded an aid group through which he trained some 150 civilians to provide medical aid to people in Syria. His group also gave food, cooking supplies, clothing and medicine to the needy.

He wrote to his parents saying: "If I do die, I figure that at least you and I can seek refuge and comfort in knowing that I went out as a result of trying to alleviate suffering and helping those in need."

Sunday's video was released as IS suffered battleground losses in Iraq backed by US-led air strikes.

Oil refinery siege broken

Iraqi forces on Saturday broke the fighters' months-long siege of the country's largest oil refinery, a day after pro-government forces retook the nearby town of Baiji.

The town was the largest retaken since IS-led fighters swept across Iraq's Sunni Arab heartland in June.

America's top military officer, chairman of the Joint Chiefs of Staff General Martin Dempsey, was in Iraq for talks on the US deployment plans.

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

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

Washington has repeatedly stated 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".

The US has forged an alliance of Western and Arab nations to combat IS, launching a barrage of air strikes against the group's positions in Iraq and Syria.

Monitors and activists reported Sunday that the group had carried out another series of air strikes in aid of Kurdish forces battling IS fighters in the Syrian border town of Kobane.

The Syrian Observatory for Human Rights, a Britain-based monitor, also reported intensifying clashes between Kurdish fighters defending Kobane and fighters in the south of the town.

Obama meanwhile rejected any alliance with Assad against IS, arguing the Syrian ruler was illegitimate and that any such pact would backfire.

"Assad has ruthlessly murdered hundreds of thousands of his citizens. As a consequence, he has completely lost legitimacy with the majority of the country," Obama told reporters after a G20 summit in Brisbane.