The children of Australia's most notorious terrorist, who are believed to be trapped behind enemy lines in Syria, are not responsible for their parents' crimes but there is little Australia can do to offer them safe passage, Prime Minister Scott Morrison says.

Key points: Three children of slain Australian IS terrorist fighter Khaled Sharrouf are believed to be alive but in the town of Baghouz, which is expected to come under a final offensive from massed Syrian forces at any moment

Three children of slain Australian IS terrorist fighter Khaled Sharrouf are believed to be alive but in the town of Baghouz, which is expected to come under a final offensive from massed Syrian forces at any moment Prime Minister Scott Morrison says Australia is unable to provide the children safe passage in that part of the world

Prime Minister Scott Morrison says Australia is unable to provide the children safe passage in that part of the world The children only hold Australian citizenship and if they escape Baghouz their family will expect the Australian Government to assist them to return

A woman believed to be Australian jihadi bride Zehra Duman revealed the surviving children of IS fighter Khaled Sharrouf are in the town of Baghouz, which is surrounded by Kurdish-led forces.

"They're fine and they're alive," the woman said in a short interview recorded by an aid worker late last week and obtained by the ABC, as she fled the area along with other women and children who were holed up in the town.

"I don't know if they're going to leave or not. I haven't kept in contact with them."

When asked whether Australia would pursue prosecution of Ms Duman, Mr Morrison said it was a complex case, and Australia would make decisions consistent with national security interests.

"Obviously the issue of the children involved is also a very sensitive one," Mr Morrison said.

"The children can't be held responsible for the crimes of their parents."

Melbourne man Khaled Sharrouf left Australia in late 2013 to fight in Syria for Islamic State.

He was later joined by his wife Tara Nettleton and their five children.

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Ms Nettleton died of health complications in 2015 and Sharrouf and two of his sons, Abdullah and Zarqawi, died in an air strike in 2017.

The couple's three remaining children — Zaynab, 17; Hoda, 16; and Hamze, 9 — were left stranded in Syria and there has been ongoing speculation about their location.

Khaled Sharrouf's children: top row Zaynab, 17 (left) and Hoda, 16 (right). Second row (left to right) is Zarqawi (deceased), Hamze, 9 and Abdullah (deceased). ( Supplied. )

Ms Duman left Australia in 2014.

During the interview obtained by the ABC, the woman — wearing the conservative Islamic niqab which concealed her features except for her eyes — said she was Ms Nettleton's best friend.

Ms Duman is believed to have lived with the Sharrouf family in Raqqa in 2015.

In January 2015, Ms Duman shared a photo to her twitter account of Tara's eldest son, Abdullah Sharrouf with the caption: "Meet Abu Musab. Abu Abdullatifs (sic) lil best mate, may he grow to be like him & receive a beautiful death just like him".

Khaled Sharrouf's son Abdullah (now deceased) holds up a gun, in a picture tweeted by Australian jihadi bride Zehra Duman. ( Twitter )

Children only hold Australian citizenship

Sharrouf attracted international condemnation when pictures of one of his sons holding up the severed head of a Syrian soldier were shared widely on social media.

The former Melbournian was the first dual-national to be stripped of his citizenship under the Federal Government's anti-terror laws.

Mr Morrison said the remaining children were in a very dangerous part of the world.

"Australia is not in a position to offer any safe passage to people who are in that part of the world," he said.

"And that is very concerning for the fact that there are children involved in this, and their parents, Khaled Sharrouf in particular, who committed despicable crimes, have placed their children in harm's way.

"We will deal with that issue sensitively, but we must remember that both parents, including Khaled Sharrouf's wife, committed crimes, being where they were, doing what they were doing."

The revelation about the location of his remaining children will likely be a headache for Canberra, given they were taken by their parents to the warzone and likely coerced into involvement with Islamic State.

They are Australian citizens and if they manage to escape Baghouz their Australian grandmother, Karen Nettleton, will expect the Australian Government to help them return home, as other Western nations have done with other families who have left IS.

Grandmother's hope for children's return

Khaled Sharrouf's mother-in-law Karen Nettleton with three of her grandchildren. ( Supplied )

Sharrouf's three Australian children remain trapped in an area about 2 kilometres wide, where Islamic State forces are slowly being ground down under a barrage of ground assaults, artillery strikes and air strikes by the US-backed Kurdish group the Syrian Democratic Forces (SDF).

The SDF are poised for a final push to take Baghouz.

Khaled Sharrouf's daughter Hoda with her grandmother Karen Nettleton. ( Supplied )

Over the past week as many as 20,000 civilians fled the town and were taken to refugee camps in Syria and Iraq. They are now living in refugee camps in northern Syria.

Ms Nettleton is said to be "ecstatic" they are alive, but blamed Ms Duman for leaving them behind when she fled.

Her lawyer Robert Van Aalst said Mrs Nettleton believed Ms Duman should have done more to help evacuate the girls. Zaynab, 17, has two children of her own.

"The question Karen asks herself is, 'why in hell's name didn't she make sure that Zaynab and Hoda, and their brother and her two great grandchildren weren't taken out at the same time?" Mr Van Aalst said.

"It looks to Karen literally as if Zehra's looked after herself and just left the children to their fate, whatever that might be.

"So she's pretty angry."

He said Mrs Nettleton believed Ms Duman had enough influence over the girls to convince them to get out.

Mr Van Aalst said he also believes Ms Duman could have helped the children leave the last Islamic State stronghold.

Families who were trapped in IS-controlled Baghouz are being transported out of the area. ( Supplied: Free Burma Rangers )

The Kurdish-led force battling IS says the battle to capture Baghouz could begin at any time.

"I wished I was religious so I could pray for their safety, but I'm not," Mr Van Aalst said.

"I'm the ultimate optimist and so is Karen.

"I hope that they get out alive and then we can start to do something about getting them back home.

"People should realise that these are children. They had no choice in the decision.

"They were brought to Turkey and Syria, and they been held as far as I'm concerned held captive all that time, which is now nearing five years.

"I just hope there'll be some compassion somewhere to help save these poor children.

"We've already lost two of them," he said in reference to Abdullah and Zarqawi Sharrouf.