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Beirut (AFP)

The Islamic State group has lost more than 60 percent of its territory and 80 percent of its revenue, an analysis firm said Thursday, as the jihadist "caliphate" turns three.

The group declared its self-styled "caliphate" across swathes of Iraq and Syria on June 29, 2014, prompting the formation of a US-led coalition in a bid to halt its advance.

In January 2015, IS jihadists controlled about 90,800 square kilometres, but by June 2017, that number dropped to 36,200, said IHS Markit.

The biggest fall was in the first six months of 2017, when IS lost around 24,000 square kilometres of territory.

"The Islamic State's rise and fall has been characterised by rapid inflation, followed by steady decline," said Columb Strack, senior Middle East analyst at IHS Markit.

"Three years after the 'caliphate' was declared, it is evident that the group's governance project has failed," Strack said.

IS is facing swelling pressure from coalition-backed assaults on its twin capitals: Raqa in Syria and Mosul in neighbouring Iraq.

On Thursday, Iraqi forces said they had retaken control of the iconic mosque in Mosul where IS chief Abu Bakr al-Baghdadi made his only public appearance.

With forces also bearing down on Raqa in Syria, the remaining parts of IS's so-called "caliphate" are unlikely to survive the end of the year, IHS said.

The sharp decline in territory has also damaged IS's ability to collect revenue from oil production and smuggling, taxation, confiscation, and other similar activities.

IHS Markit said IS's average monthly revenue has plummeted by 80 percent, from $81 million in the second quarter of 2015 to just $16 million in the second quarter of 2017.

"Losing control of the heavily populated Iraqi city of Mosul, and oil rich areas in the Syrian provinces of Raqa and Homs, has had a particularly significant impact on the group's ability to generate revenue," said senior analyst Ludovico Carlino.

As a result, IS was likely to shift its funding structure towards "a future insurgency through a real-war economy".

© 2017 AFP