Iraqi Kurdish and Shi'ite forces agreed to coordinate movements after cutting off Mosul from the rest of the territory held by Islamic State in western Iraq and Syria in support of a U.S-backed offensive to capture the city, U.S. and Iraqi officials said on Thursday.

Islamic State retaliated to the advance with a massive truck bomb in Hilla, hundreds of kilometres away from the front lines.

The attack killed at least 80 people, most of them Iranian pilgrims returning from the Shi'ite holy city of Kerbala, according to police and medical sources.

The agreement between the Kurds and the Shi'ite groups was reached at meeting on Wednesday between commanders of Kurdish Peshmerga forces deployed in Sinjar, west of Mosul, and Hadi al-Amiri, the leader of the Iranian-backed Badr Organisation.

Badr is the biggest component of the paramilitary coalition known as Popular Mobilisation, or Hashid Shaabi, which deployed southwest of Mosul to complete the encirclement of Islamic State's last major city stronghold in Iraq.

Mosul was already ringed to the north, south and east by Iraqi government forces and the Peshmerga. Iraq's U.S.-trained Counter Terrorism Service units breached Islamic State defences in east Mosul at the end of October and are fighting to expand their foothold there.

The offensive started on Oct. 17 with air and ground support from a U.S.-led coalition. It is turning into the most complex campaign in Iraq since the 2003 invasion that toppled Saddam Hussein, a Sunni, and empowered the nation's Shi'ite majority.

Al-Amiri "came in order to coordinate with us," said Mahma Xelil, the mayor of Sinjar, a city where Islamic State committed its worst atrocities after taking over the region two years ago, killing and enslaving thousands from the Yazidi minority.

Controlling the road will make it easier for the Iraqi army to enter Tal Afar, Xelil said. "There must be cooperation between us to prevent ISIS from moving their equipment and their fighters," he added, referring to Islamic State.

Sinjar was recaptured a year ago by the Peshmerga, forces of the Kurdistan Regional Government of northern Iraq. It lies west of Tal Afar, another stronghold of Islamic State, 60 km (40 miles) west of Mosul.

Another Iranian-backed group, Kata'ib Hezbollah also met with the Peshmerga, according to the TV station of the organisation. Iraqi Prime Minister Haider al-Abadi on Thursday Popular Mobilisation leaders on Thursday at the Tal Afar air base, just south of the town, state TV said.

"The joining of these forces greatly reduces the freedom of movement of ISIL insurgents in and out of Mosul," said Air Force Col. John Dorrian, a Baghdad-based spokesman for the U.S.-led coalition, referring to Islamic State. "They have already lost the effective ability to move in large numbers, but now this has been made more difficult for them."

Another prominent leader of the Popular Mobilisation units, Abu Mahdi al-Mohandes, said on Wednesday the Shi'ite forces had linked up with the Peshmerga near Sinjar, completing the encirclement of a region that extends from Mosul and Tal Afar.

Mohandes said Popular Mobilisation would try next to separate Mosul from Tal Afar, which lies on the route between Mosul and Raqqa, the main city of the militant group's self-styled "caliphate" in Syria..

THOUSANDS FLEEING

Thousands of civilians fled Tal Afar as Popular Mobilisation closed in on the town, which is mostly populated by ethnic Turkmen.

The exodus is worrying humanitarian organisations as some of the civilians are heading into insurgent territory, where aid cannot be sent to them, provincial officials said on Wednesday.

Those fleeing Tal Afar are Sunnis, who are in a majority in Nineveh province in and around Mosul. Tal Afar also had a Shi'ite community, which fled in 2014 when the Sunnis of Islamic State swept through the region.

Abadi tried to allay fears of ethnic and sectarian killings in Tal Afar, saying any force sent to recapture it would reflect the city's diversity.

The Iraqi military estimates there are 5,000 to 6,000 insurgents in Mosul facing a 100,000-strong coalition of Iraqi government units, Kurdish peshmerga and Shi'ite militias.

Mosul's capture is seen as crucial towards dismantling the caliphate, and Islamic State leader Abu Bakr al-Baghdadi, believed to have withdrawn to a remote area near the Syrian border, has told his fighters there can be no retreat.

The militants are dug in among more than a million civilians as a tactic to hamper air strikes. They are moving around the city through tunnels, driving suicide car bombs into advancing troops and hitting them with sniper and mortar fire.

"We are controlling large parts of the eastern side," the commander of the Counter Terrorism Service, Talib Shaghati, told reporters in Bartella, one of the first villages taken from Islamic State after the offensive started. "One of the challenges we face ... is the presence of civilians."

Nearly 69,000 people are registered as displaced by the fighting, moving from villages and towns around the city to government-held areas, according to U.N. estimates.

The figure does not include the thousands of people rounded up in villages around Mosul and forced to accompany Islamic State fighters to cover their retreat towards the city as human shields. It also does not include the 3,000 families which have fled Tal Afar.

Earlier this month, the bodies of at least 20 people killed by Islamic State were hung up across Mosul- five crucified at a traffic junction - to warn residents against cooperating with the Iraqi military.

"Mosul's residents are part of the security forces. They are cooperating with us," Shaghati, the Counter Terrorism commander said. "They give us information."