Canadian special forces clashed with Islamic State fighters in Iraq last week, in the first recorded firefight between Western troops and the Islamic militants.

Soldiers visiting front-line positions with Kurdish Peshmerga forces came under heavy mortar and machine gun fire, Brigadier General Michael Rouleau confirmed.

The Canadians used sniper fire to 'neutralise' the ISIS threat without taking any casualties.

He said the troops, whose job it is to train the Iraqi military, fired back only in self-defence, adding: 'My troops had completed a planning session with senior Iraqi leaders several kilometres behind the front lines.

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ISIS threat: An Islamic State flag can bee seen in Sayed Ghareeb - 70km north of Baghdad - where a coalition of Iraqi soldiers and pro-government forces fight the militant group (file photo)

Standing guard: An Iraqi soldier, draped in black, keeps watch in Sayed Ghareeb as a rocket launcher is loaded (file photo)

Heavy weaponry: An Iraqi soldier loads a multiple rocket launcher during clashes between Islamic State and a coalition of combatants, made up of the Iraqi army and pro-government forces (file photo)

Retaliation: The rockets were fired in the area of Sayed Ghareeb, which Iraqi forces tried to recapture from ISIS (file photo)

Non-combat: The Canadian special forces are in Iraqi to train the Kurdish Peshmerga forces (pictured)

'When they moved forward to confirm the planning at the front lines in order to visualize what they had discussed over a map, they came under immediate and effective mortar and machine gun fire.'

The general said that while Canadian soldiers are not participating in active combat, they do have the right to fire back in order to protect themselves.

He told a group of reporters in Ottawa: 'This is the first time this has happened since our arrival and our reaction is wholly consistent with the inherent right of self-defense.'

Rouleau, who is the commander of special operations, and other Canadian officials declined to say where the gunfight happened - citing operational security.

For the first time, the general did admit that Canadian soldiers have been helping Kurdish forces by directing coalition air strikes from the ground.

Canada has six CF-18 fighter jets, a refueling tanker aircraft and two surveillance planes in the region as part of an air combat mission that includes about 600 airmen and airwomen.

The news emerged as Islamic State released a new video in which the group threatens to kill two Japanese hostages unless they receive $200 million within 72 hours.

Japan's Prime Minister Shinzo Abe pledged $200million in non-military support for countries fighting ISIS in Iraq and Syria only two days ago.

The footage which appeared on various militant websites featured the British-accented militant widely known as 'Jihadi John', who appeared in the beheading videos of four Western hostages last year.

He identifies the men - kneeling in orange jumpsuits - as journalist Kenji Goto Jogo and military company operator, Haruna Yukawa.

Ransom: A video purportedly from ISIS shows Japanese hostages Kenji Goto Jogo and Haruna Yukawa in orange jumpsuits with a British-accented jihadi demanding $200 million in exchange for their lives

In the firing line:Footage on Kenji Goto Jogo's last Twitter post in October shows him talking in front of the Syrian city of Kobani, which has been under siege from ISIS fighters for months

Kidnapped: Haruma Yukawa, a private military company operator in his early 40s, was kidnapped in Syria, but his reasons for going to the country remain unclear

The militant directly addresses Japanese Prime Minister Shinzo Abe, now on a six-day visit to the Middle East with more than 100 government officials and Japanese business leaders.

Brandishing a knife and dressed all in black, the militant says: 'To the prime minister of Japan. Although you are more than 8,000 and 500km (5,280 miles) from the Islamic State, you willingly have volunteered to take part in this crusade.

'You have proudly donated $100 million to kill our women and children - to destroy the homes of the Muslims.'

Canada is among dozens of countries that have joined the United States-led coalition fighting the Islamic State militant group in Iraq.

It has 69 special forces soldiers in the country, in what the Canadian government has described as a training and advisory role.