A mass grave of 100 headless bodies has been found south of Mosul in a town that was recently recaptured from Islamic State, the Iraqi Army said on Monday.

The grave was found in the grounds of the agricultural college in Hammam al-Alil, 15 kilometres south of Mosul, according to a statement from the army's military information office.

State television said the victims appeared to have been killed recently and were likely to have been detainees who had been held and tortured by Islamic State.

Their decapitated bodies had been thrown into a rubbish pit, the broadcaster said.

The UN warned two weeks ago that Islamic State appeared to have killed dozens of civilians since the offensive against Mosul - the last major Iraqi urban centre held by the jihadists - was launched in mid-October.

Mass graves have previously been found in a number of areas recaptured from Islamic State, including the Sinjar district where the group massacred members of the Yezidi religious minority.

Other sites held the bodies of some of the estimated 1,700 Shiite army recruits captured and killed as the group overran swathes of Iraq in 2014.

Mass graves dating back to the massacres of Kurds and other opponents by former dictator Saddam Hussein - overthrown in a US-led invasion in 2003 - have also been uncovered in Iraq in recent years.

The military said specialist teams were being sent to examine the scene of the latest find.

Also on Monday, Kurdish forces Monday said they had captured the Islamic State-held town of Bashiqa north-east of Mosul, two weeks after they surrounded it and cut off its jihadist defenders.

A small number of snipers were still holding out in the town but it was under the control of the Peshmerga, Aziz Wisi of the Kurdish Zerevani military police said.

Bashiqa lies about 13 kilometres from Mosul's eastern districts, which are already under assault by elite counter-terrorism forces answering to the central government in Baghdad.

The Peshmerga fighters were meeting less resistance than expected although there were thought to be some 60 Islamic State snipers inside the town, local commander Muhannad Sinjari said earlier.

Seven militants wearing explosive belts attempted to hit the advancing Kurdish forces but were killed, Sinjari added.

The Peshmerga have played a key role on Mosul's eastern and north-eastern fronts.

Prime Minister Haider al-Abadi visited Kurdish President Massoud Barzani in his capital, Erbil, late on Saturday, in another sign of warming relations between Baghdad and the Kurds.

Control of Bashiqa and a number of other areas around Mosul, where many Christians, Yezidis and other minority groups lived, was disputed between Baghdad and Erbil before Islamic State captured the region in 2014.

However, both al-Abadi and the Kurds have said that only Iraqi government forces will enter Mosul itself, which has a Sunni Arab majority.

Meanwhile, the UN refugee agency UNHCR said that the number of people displaced from Mosul district had risen to almost 34,000.

That was a 53-per-cent increase over the last 48 hours, the UN agency said.

In Washington, officials said Monday that the US has been working with the United Nations and international groups to ensure that food, shelter and relief supplies were in place.

The preparations include ready-to-eat meals for up to 1.25 million people. The United States, like the UN, is preparing for a worst-case-scenario of up to 700,000 people being displaced by the fighting in and around Mosul.