Troops are meeting fierce resistance as militants retreat into the Old City, where street fighting is expected in the narrow alleyways and around the mosque where Islamic State declared its caliphate nearly three years ago.

A helicopter fired rockets into the area and heavy gunfire and mortar blasts echoed as troops made forays in districts near the Nuri mosque, where Islamic State's black jihadist flag hangs from its leaning minaret.

"Federal police and rapid response forces completely control the al-Basha mosque, al-Adala street and Bab al-Saray market inside the Old City," a federal police spokesman said. "Forces are trying to isolate the Old City area from all sides and then start an offensive from all sides."

Five months into the campaign to liberate Mosul, Islamic State's last major stronghold in the country, Iraqi forces backed by U.S.-led coalition air strikes have retaken the eastern half of the city and about half of the western side across the Tigris river.

Losing Mosul would be a huge blow to Islamic State. It has served as the group's de facto capital since its leader Abu Bakr al-Baghdadi announced his self-declared caliphate spanning Iraq and Syria from the Nuri Mosque in July 2014.

Troops were trying to besiege the Old City and cut off a street leading out to prevent Islamic State dispatching the armored suicide car and truck bombs that have been targeting army positions inside the city.

On Wednesday, a suicide bomber in an armored digger truck penetrated Iraqi forces lines, smashing through vehicles and barricades before detonating a blast that destroyed vehicles including Iraqi U.S.-made Abrahams tanks.

"A bulldozer packed with a large amount of explosives managed to reach our troops near the museum using the Old City side roads, we lost an Abrahams tank, three Humvees and four soldiers," a spokesman for the rapid reaction forces said.

An attack on Thursday was stopped when the vehicle was hit by a rocket in the Bab Tob old market area before it could approach federal police and other units, the rapid response force official said.

GUERRILLA TACTICS

Islamic State forces swept in to control a third of Iraq when the army abandoned its positions and fled two years ago. The Iraqi government says its security forces have since been rebuilt and have proven themselves in battle, recapturing lost ground.

A U.S.-led coalition has been providing air strike support, intelligence and advisers on the ground. The Mosul battle has put U.S. troops in a more visible role than at any time since they began to withdraw from Iraq in 2011. Former President Barack Obama sent thousands back as advisers.

U.S. officials have estimated that around 2,000 fighters remain inside the city. But there are risks militants will return to the kind of guerrilla warfare and bombings they have used in the past against the capital and other cities.

Just north of Baghdad, a Sunni militia leader was killed along with two members of his family and two guards on Friday when gunmen, including suicide attackers, broke into his house, police and army sources said.

Lateef al-Jari, local leader of Sunni brigade in the small Sunni town of Mishahda, was killed in the attack, which security sources blamed on Islamic State.

Residents are streaming out of western Mosul neighborhoods recaptured by the government, many hungry and traumatized by living under Islamic State's rule. Many say food is running short and security is fragile even in liberated areas.

As many as 600,000 civilians are caught with the militants inside Mosul, which Iraqi forces sealed off from the remaining territory that Islamic State controls in Iraq and Syria. The Iraqi forces include army, special forces, Kurdish peshmerga and Shi'ite militias.

Around 255,000 people have been displaced from Mosul and surrounding areas since October, including more than 100,000 since the latest military campaign in western Mosul began on Feb. 19, United Nations figures show.

The last week has seen the highest level of displacement yet, with 32,000 displaced between March 12 and 15.