A high-ranking Islamic State leader who allegedly masterminded the extremist group's half-billion-dollar oil smuggling enterprise has been killed in a firefight, according to reports.

Thabit Sobhi Fahd Al-Ahmad, a self-styled minister of oil in the now dismantled so-called caliphate, was gunned down in his hideout by Kurdish-led Syrian Democratic Forces (SDF), according to a statement.

The SDF statement said the attack in Deir Al-Zor province, east of Syria, was carried out in cooperation with the US-led Coalition forces.

Fighters from Islamic State marching in Raqqa, Syria, in a photo dated from 2014. (AAP)

Ahmad was considered to have a close relationship with the elusive leader of IS, Abu Bakr al-Baghdadi, who remains at large - despite several reports in the past claiming he had been killed.

The smuggling of black market oil had been a lucrative cornerstone of the IS economy, which helped the group take over vast swathes of Iraq and Syria.

At its height, IS was believed to be making $700 million a year through black market oil sales into Europe, much of it believed to have been trafficked across the borders of a compliant Turkey.

Michael S. Smith II, a US-based terrorism analyst and teaching fellow in Johns Hopkins University's Global Security Studies program, described Ahmad as a "high value target".

But Smith urged the US government to further incentivise its coalition partners in Iraq and Syria to capture senior IS fugitives alive, for intelligence purposes.

"On one hand, [the reported killing of Ahmad] may prove a serious setback for the group. On the other, it probably would have been a bigger problem for Islamic State if he had been captured versus killed," Smith told nine.com.au.

"While the SDF is to be commended for its work, the US and our allies should do more to provide incentives for capturing high-value targets in Syria."

Through its Rewards for Justice Program, the US State Department has paid out more than $200 million for information which has led to the capture of individuals involved in terrorism.

(Nine)

Smith said that counterterrorism initiative could be used "more aggressively" to bring senior members of Islamic State and al-Qaeda to justice.

"I suspect most members of the SDF know it is rather difficult to secure rewards from this program, and this has factored into calculations concerning whether it is worth taking extra risks to try to capture the big fish that are still at large in Syria," he said.

Nine.com.au has contacted the US State Department for comment.

The US currently has a bounty of $25million on IS leader al-Baghdadi's head. There is also a $1million reward on Hamza bin Laden, the son of deceased former al-Qaeda leader Osama bin Laden who in recent years has risen in that group's hierarchy.

News of Ahmad's death in Syria comes weeks after Saudi special forces announced they had captured the leader of the Yemeni branch of the Islamic State militant group, Abu Osama al-Muhajer.

Earlier this month the Washington-based Institute for the Study of War released a report which painted a deeply disturbing picture of what may lie in store in Iraq and Syria, in sharp contrast to US President Donald Trump who claimed last December IS had been defeated.

The report warned an anticipated "devastating" comeback by IS could be worse than the bloody insurgency that launched the so-called caliphate.

According to the report, there are numerous pockets of well-armed, well-financed sleeper cells ready to launch waves of guerrilla attacks.

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