By Oliver Holmes and Sylvia Westall

BEIRUT (Reuters) - Syrian armed forces have taken strategic ground around Aleppo this week, residents and state media said on Wednesday, squeezing the main rebel supply line into the city after months of battlefield gains by Damascus.

The government advance, after close to two years of stalemate, was bolstered by fighters from the Lebanese Shi'ite Muslim group Hezbollah, an ally of President Bashar al-Assad, according to sources close to Hezbollah.

Rebels pushed into Aleppo, once Syria's commercial hub, in 2012 from the north and took districts in the heart of the city. Since then, the army has held the west and south of Aleppo but has been unable to dislodge opposition fighters.

Syrian state news agency SANA said that the army had taken control of an industrial complex in northeast Aleppo on Sunday. Control of the complex means rebels are now hemmed in on three sides by government forces and can only resupply neighborhoods in the city through a northern corridor.

"There is a four-kilometer-(2.5-mile)-wide area in the north that is controlled by the opposition now," said a resident opposition activist from Aleppo. "If the regime can capture one last street, they will be able to besiege the city."

The advance follows months of incremental gains by pro-government forces. Assad has demonstrated a tenacious hold on power after three years of brutal civil war and is due to be sworn in for a new term on July 17.

In May, troops broke a year-long rebel blockage on Aleppo's main prison after heavy fighting with the Nusra Front, al Qaeda's official affiliate in Syria, and other Islamist militant brigades in the rebel ranks.

A diplomat in the region said the Syrian government "feels like they are winning Aleppo. The regime has worked strategically since 2013 on regaining Aleppo, cutting the supply line."

The diplomat added that the army advance in Aleppo had been deliberately slow to give it time to consolidate control over recovered areas. "They haven't lost any areas they have taken back. It is not a battle of back-and-forth."

Political sources close to Hezbollah said that it had embedded advisers with Syrian army units in Aleppo and recently sent fighters - battlefield-trained during skirmishes with Israel - to the front lines in Aleppo.

HEZBOLLAH EXPANDS EASTWARDS IN SYRIA

Hezbollah fighters helped Assad's forces retake rebel-held areas along the Lebanese border but their presence in Aleppo, far from Lebanon, marks a significant expansion of the Shi'ite group's area of operations.

SANA said on Wednesday that army united had "pummeled terrorists" in several areas around Aleppo city.

Disparate rebel groups in Aleppo have also been weakened by infighting this year, benefiting Assad. An al Qaeda splinter group called Islamic State is now the strongest militia in eastern Syria and has also taken areas from other rebel units in Aleppo province.

Syria sank into civil war after a peaceful street uprising against four decades of Assad family rule began in March 2011. The revolt spiraled into an armed insurgency after the army responded with massive and deadly force to suppress the unrest.

Syria's war has killed 160,000 people. Nine million people inside the country need aid and protection and 2.5 million refugees have fled abroad.

Assad's forces now control most of the capital, along with the main highway from Damascus through to Homs and the western Mediterranean coast. Rebels control much of the desert in the north and east.

Syrian forces have successfully used siege warfare to take back lost ground, encircling hundreds of thousands of people across Syria and blocking off food and medicine. Rebels have also besieged 45,000 people in two Shi'ite towns in the north.

In Homs city, rebel fighters held out in the Old City for two years despite repeated offensives by the army and heavy bombardment. Troops laid siege to the Old City for a year and in May hundreds of rebels abandoned their last stronghold.

(Editing by Mark Heinrich)