Fighters from the breakaway group the Islamic State of Iraq and the Levant (ISIL) have begun withdrawing from parts of northern Syria ahead of a deadline set by a powerful rival al-Qaeda faction.

The Syrian Observatory for Human Rights on Friday said the ISIL was retreating east towards its stronghold in the city of Raqa.

The withdrawal comes four days after the al-Qaeda affiliated Al-Nusra Front issued the ISIL an ultimatum to go before an Islamic court for mediation or face being expelled from Syria and the region altogether.

The deadline was to expire on Saturday.

"ISIL has withdrawn from Aazaz, its most important bastion in Aleppo province, as well as the Minnigh military airport, the Mayer region and the villages of Deir Jamal and Kafin," the observatory said.

"Aleppo region is their weakest link, so they fear being attacked there by Nusra and other rebels after the deadline expires, observatory director Rami Abdel Rahman told AFP.

Rahman said the ISIL fighters had regrouped in particular in Jarabulus and Manbij, on the far eastern border of Aleppo province and close to its Raqa stronghold.

Mass grave reports

The observatory was investigating reports of a possible mass grave found in Aazaz, which the ISIL seized in September 2013, in the wake of its withdrawal from the city.

The withdrawal was confirmed by the opposition Aazaz Media Centre, which claimed it as a victory for rival rebel fighters.

Video footage from the town posted online showed a demonstration of residents chanting "the Free Syrian Army forever" after the ISIL's withdrawal.

Abu Mohammed al-Golani, the Nusra leader, on Tuesday issued a threat against the ISIL after the death of a

senior Islamist commander, Abu Khaled al-Suri, who had acted as al-Qaeda chief Ayman al-Zawahri's representative in Syria.

Rebels and activists believe he was assassinated by two suicide bombers from the ISIL.

Fighting between the rebel factions has killed hundreds of people since the beginning of the year and is undermining the wider battle against President Bashar al-Assad.

The Iraq-based group has angered other factions with its brutal tactics and harsh laws in areas it controls in the northeast.

Nearly 2,000 people have been killed in fighting between the group and other factions, including Nusra.