(CNN) The black flag of ISIS flies over government buildings. Police cars carry the group's insignia. The local football stadium is used for public executions. A town in Syria or Iraq? No. A city on the coast of the Mediterranean, in Libya.

Fighters loyal to the Islamic State in Iraq and Syria are now in complete control of the city of Derna, population of about 100,000, not far from the Egyptian border and just about 200 miles from the southern shores of the European Union.

The fighters are taking advantage of political chaos to rapidly expand their presence westwards along the coast, Libyan sources tell CNN.

The sources say the Derna branch of ISIS counts 800 fighters and operates half a dozen camps on the outskirts of the town, as well as larger facilities in the nearby Green Mountains, where fighters from across North Africa are being trained.

It has been bolstered by the return to Libya from Syria and Iraq of up to 300 Libyan jihadists who were part of ISIS' al Battar Brigade -- deployed at first in Deir Ezzor in Syria and then Mosul in Iraq. These fighters supported the Shura Council for the Youth of Islam in Derna, a pro-ISIS faction.

The council had been competing for superiority with another militant group, the Abu Salem Brigade, some of whose fighters' loyalties lay with al Qaeda, according to Noman Benotman, a former Libyan jihadist now involved in counter-terrorism for the Quilliam Foundation.

Al Qaeda's top envoy in Libya, Abdulbasit Azuz, left Derna after U.S. Special Forces captured Ahmed Abu Khatallah, an alleged ringleader of the Benghazi attacks in June. Azuz is now believed to be in Syria, Benotman told CNN.

Amateur video from the end of October showed a large crowd of militants affiliated with the Shura Council for the Youth of Islam chanting their allegiance to ISIS leader Abu Bakr al Baghdadi. The new ISIS wing in Derna calls itself the "Barqa" provincial division of the Islamic State, the name given to the eastern region of Libya when Islamic rule replaced the Roman Empire.

The Libyan branch of ISIS now has a tight grip on the city, controlling the courts, all aspects of administration, education, and the local radio. "Derna today looks identical to Raqqa, the ISIS headquarters town in Syria," Benotman told CNN.

"ISIS pose a serious threat in Libya. They are well on the way to creating an Islamic emirate in eastern Libya," Benotman said.

Judges, journalists and army officers have been among dozens targeted for assassination in Derna in 2014.

Similarities to Syria

Derna has a long history of Islamist radicalism. Marginalized during the Gadhafi era, it contributed more foreign fighters per capita to al Qaeda in Iraq than any other town in the Middle East. It has also provided scores of fighters for ISIS in Syria.

In another disturbing similarity with Syria, the bodies of three anti-ISIS activists were found beheaded in the town in early November. The group has beheaded many in Syria, including Western journalists and aid workers.

In September ISIS leader Baghdadi helped orchestrate the takeover of Derna by dispatching one of his senior aides, Abu Nabil al Anbari, an Iraqi ISIS veteran who had spent time with Baghdadi, in a U.S. detention facility in Iraq, according to Benotman.

Helped by Abu al-Baraa el-Azdi, a Saudi preacher who has become Derna's top religious judge, al Anbari's efforts have borne fruit. In November a new pan-Libyan group calling itself "Mujahideen of Libya" declared allegiance to Abu Bakr al Baghdadi, claiming it was sub-divided into three provinces: Barqa, Tripoli, and Fezzan (southwest Libya). The ISIS leader responded by calling all supporters in Libya to join what he called the newest administrative region of the Islamic caliphate.

According to Aaron Zelin, a senior fellow at the Washington Institute for Near East Policy, the Islamic State's new province in Libya "could have some level of viability, at least in the short term" because fighters there are well-positioned to fund themselves through "trafficking, smuggling and other black market activities."

Libyan fighters loyal to ISIS have expanded their presence westwards along the coast, forming chapters in al Bayda, Benghazi (where the Islamist umbrella group Ansar al Shariah already holds sway), Sirte, al-Khums and even Tripoli, Benotman told CNN.

The Derna wing of the Islamic State in Libya was the prime suspect in a suicide bombing in early November in Tobruk, the temporary home of Libya's internationally recognized parliament near the Egyptian border. One person was killed and 14 wounded. The group is also suspected of carrying out a car bombing outside Labraq air force base in Al-Bayda, the same day, killing four.

In November the Derna wing claimed it had previously dispatched nine suicide bombers from Egypt, Libya and Tunisia to carry out attacks against Libyan security forces in and around Benghazi. Several of the attacks appear to correspond to previously unclaimed suicide bombings in the area, including a twin-attack on a Libyan special forces camp in Benghazi on July 23 and an October 2 attack on a military checkpoint near Benina airport.

An ISIS-linked Twitter account also suggested the Tripoli wing was responsible for car bomb attacks in early November outside the Egyptian and UAE embassies in the capital, according to the SITE Intelligence group.

In an audio message, the Mujahideen of Libya threatened "the secularists and parliamentarians and their pillars from the police, army...."

"We have prepared for you from the most bitter of cups, and the worst of deaths," it said.

Concerns in Egypt

Islamist-leaning militias from Misrata seized control of Tripoli in the summer, forcing the parliament to relocate. They are suspected of shipping arms to ISIS fighters in the east of Libya. Benotman says the Libyan air force destroyed one of those shipments in November; CNN was not able to independently confirm the arms shipments.

But there are other signs that more secular forces in Libya are beginning to strike back at ISIS supporters. Libyan air force jets bombed their positions in Derna in November. According to Benotman, they struck five Islamic State positions in the area, including command centers and training camps, killing six fighters and injuring 20.

"Most of the local population in Derna are opposed to the takeover by the Islamic State, but, with the complete absence of any central government presence, they are not in a position to do much for now. Local tribes are reluctant to move against them because people have relatives who have joined their ranks," Benotman told CNN.

Egypt, which has strongly backed the anti-Islamist coalition in Tobruk, has grown increasingly concerned about the ISIS presence in eastern Libya. In July gunmen suspected of being part of Ansar Beit al Maqdis, an Egyptian jihadi group, attacked an Egyptian desert border post, killing 21 soldiers. Ansar Beit al Maqdis has also pledged allegiance to ISIS -- raising concerns that it may cooperate with the Islamic State supporters in Libya. Egyptian officials say a significant number of Ansar al Beit's weapons originated in Libya.

Back in August British Prime Minister David Cameron warned that if ISIS "succeeds, we would be facing a terrorist state on the shores of the Mediterranean." He may not have imagined that months later ISIS would have an outpost not far from the shores of southern Europe.