By Dominic Evans and Parisa Hafezi

BEIRUT/ANKARA (Reuters) - Islamic State fighters have seized villages close to the northern city of Aleppo from rival insurgents, a monitoring group said on Friday, despite an intensifying Russian air-and-sea campaign that Moscow says has targeted the militant group.

News of the advance came as the United States announced it was largely abandoning its failed programme to train moderate rebels fighting Islamic State and would instead provide arms and equipment directly to rebel leaders and their units on the battlefield.

The Obama administration is grappling with a dramatic change in the four-year-old Syrian civil war brought about by Moscow's intervention in support of President Bashar al-Assad.

The Russian defence ministry said stepped-up air strikes on rebel positions in Syria killed 300 anti-Assad rebels and that it hit 60 Islamic State targets over the last day. There was no independent confirmation of the death toll.

About 200 insurgents were killed in an attack on the Liwa al-Haqq group in Raqqa province while 100 died in Aleppo, the defence ministry said. Two Islamic State commanders were among the dead in Russia's most intense raids since it launched strikes in Syria 10 days ago. In previous updates Russia has reported hitting 10 targets daily.

However, the Syrian Observatory for Human Rights, which monitors the fighting, said there had been no significant advances by government forces backed by allied militia in areas where ground offensives were launched this week. "It's back and forth," said Rami Abdulrahman, director of the Observatory.

Iran's elite Revolutionary Guard Corps said separately that one of its generals had been killed near Aleppo, once Syria's most populous city. Iran, like Russia an Assad ally, says it has advisers in the country.

Islamic State is now within 2 km (1.2 miles) of government-held territory on the northern edge of Aleppo, which has suffered widespread damage and disease during the civil war that erupted in the wake of protests against Assad.

Syria's military, backed by Russia, Iran and allied militias, has launched a major attack in Syria's west to recapture land lost to non-IS rebels near the heartland of Assad's minority Alawite sect. That area is vital to Assad's survival.

A senior regional official close to the Syrian government said: "The Iranians are at the heart of the battle, with strength and effectiveness. Yes they are participating."

As the government operation in the west pushed ahead, Islamic State said its fighters had captured five villages in its northern offensive and had killed more than 10 soldiers or militiamen. Powerful insurgent group Ahrar al-Sham managed to recapture one of the villages, Tel Suseen, later in the day, the Observatory and online media affiliated with the rebels said, but the others appeared to remain in IS hands.

The British-based Observatory said it was the biggest advance by Islamic State since it launched an offensive against rival rebels in Aleppo near the Turkish border in late August.

"DAESH EXPLOIT RUSSIAN STRIKES"

"Daesh has exploited the Russian air strikes and the preoccupation of the (rebel) Free Syrian Army in its battles in Hama, and advanced in Aleppo," said one rebel commander with fighters in the region, using an Arabic name for Islamic State.

Russian warplanes and warships have been bombarding targets across Syria in a campaign Moscow says is targeting IS fighters, who control large parts of eastern Syria and of Iraq.

But the campaign appears to have mainly struck other rebel groups, some of which had been battling to stop the Islamic State advance across Aleppo province.

U.S. and Russian warplanes are now flying missions over the same country for the first time since World War Two, risking incidents between the two air forces and their fast jets.

Seeking to underline the dangers, U.S. officials said four Russian cruise missiles fired from a warship in the Caspian Sea had crashed in Iran, which drew a swift denial from Russia.

Speaking in London on Friday, U.S. Defence Secretary Ash Carter said however that the United States had indications that Russian cruise missiles did malfunction.

Washington said it was pulling the plug on a short-lived $580 million programme to train and equip units of fighters at sites outside of Syria, after its disastrous launch this year fanned criticism of President Barack Obama's war strategy.

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