An Al Qaeda-linked militant group has overrun the Iraqi city of Tikrit as 500,000 people flee in the aftermath of its march towards Baghdad.

Tikrit is the second city in as many days to fall to the Islamic State in Iraq and Syria (ISIS) - Sunni militants who are waging sectarian war on both sides of the Iraqi-Syrian frontier.

ISIS had already captured Mosul, the country's second largest city, where 80 Turkish citizens are being held hostage by the militants.

Tikrit, the home town of executed former dictator Saddam Hussein, is only 150 kilometres north of Baghdad.

Its capture means ISIS and other militias now control major cities from Fallujah and Ramadi in the west to Mosul in the north.

The militants have occupied the provincial government headquarters in Tikrit and raised the black flag of ISIS and the US-based SITE monitoring group says it has translated an ISIS audio statement declaring the rebels' intention to march onwards to Baghdad.

"Our forces were caught by surprise. They never expected ISIS would use police and army Humvee vehicles, we mistook them for government forces and it was too late to stop them," said a police captain who fled the city.

"We are fighting devils and not ordinary people".

The capture of Mosul, home to 2 million people, and much of the northern province of Nineveh came after days of sustained fighting.

The hostages being held in the Turkish consulate in Mosul include special forces soldiers, diplomats and children.

Turkish foreign affairs minister Ahmet Davutoglu said the nation was "engaged in calm crisis management" but warned of a swift response if any of the hostages were harmed.

"This should not be misunderstood. Any harm to our citizens and staff would be met with the harshest retaliation," he said in New York after cancelling meetings at the United Nations to return to Turkey.

Turkey has close trade and political links with the Kurdish-controlled area to the north of Mosul that has not, for the moment at least, been targeted by ISIS. It sees a particular role in protecting the interests of the Turkmen ethnic minority in that area.

The fall of Mosul is a slap to Baghdad's efforts to quash Sunni militants who have regained ground and strength in Iraq over the past year, seizing Sunni towns of Fallujah and parts of Ramadi in the desert west of Baghdad at the start of the year.

ISIS militants are also closing in on the key oil refinery area of Baiji, although US State Department spokeswoman Jen Psaki said the US believed the facility remained under the control of the Iraqi government.

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Baiji resident Jasim al-Qaisi said the militants had asked senior tribal chiefs in Baiji to persuade local police and soldiers not to resist their takeover.

"Yesterday at sunset some gunmen contacted the most prominent tribal sheikhs in Baiji via cellphone and told them: 'We are coming to die or control Baiji, so we advise you to ask your sons in the police and army to lay down their weapons and withdraw before evening prayer'," he said.

The Baiji refinery can process 300,000 barrels per day and supplies oil products to most of Iraq's provinces and is a major provider of power to Baghdad.

The White House has strongly condemned the advances by ISIS, saying it will "assist the Iraqi people as they confront the threat that [ISIS] poses to Iraq and the region".

A map of Iraq showing areas under ISIS control as of June 12 (AEDT) ( ABC News: Ben Spraggon )

Militants 'bulldoze berm' dividing Iraq and Syria

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ISIS posted pictures online of militants bulldozing a berm dividing Iraq and Syria, symbolising its goal of uniting its forces in the two countries to create a cross-border Islamic state.

In photos shared on Twitter, the jihadists could be seen clearing a road through the berm before trucks drove through as a militant stood nearby holding the group's black flag.

The first shot was dated June 10 and carried the title of the photo series "Smashing the Sykes-Picot border" - a reference to the agreement between Britain and France that carved up the Middle East after World War I, with the former taking Iraq and the latter Syria.

Another photo showed a militant standing in front of Iraqi army jeeps and trucks, suggesting the shots were taken after the launch of a jihadist offensive this week in which large numbers of military vehicles were captured.

But the authenticity of the photos could not be independently verified.

Government needs 'quick response'

Middle East expert Kenneth Pollack says the situation could potentially rock stability in the region and impact global oil supplies

Mr Pollack, who is a senior fellow at the Saban Centre for Middle East Policy at the Brookings Institute, says ISIS is as radical, if not more so, than Al Qaeda.

"It is likely that what we are seeing is the beginning of a new civil war in Iraq," he told The World Today.

"While that is probably not likely to lead to a rapid takeover by Al Qaeda, the fighting there could have a very serious impact on the stability in the rest of the region and the global supply of oil."

Mr Pollack, a former member of the US National Security Council and a former Iran-Iraq military intelligence analyst, says Iraq's government needs to be ready for attacks on the capital.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Listen Duration: 8 minutes 19 seconds 8 m Kenneth Pollack speaks to Eleanor Hall Download 15.3 MB

"The government of Iraq needs to be shoring up the defences of Baghdad because that is absolutely the next stop. That said, I would be very surprised if you saw the rapid fall of Baghdad," he said.

Iraq's foreign minister Hoshyar Zebari called on his country's leaders to come together to face "the serious, mortal" threat posed by the ISIS advance in the country's north.

"The response has to be soon. There has to be a quick response to what has happened," he said during a trip to Greece.

"You cannot leave these people to stay there to entrench themselves for a long time."

Mr Zebari said Baghdad would cooperate with Kurdish forces to try to drive militants out of Mosul but declined to give any details about the cooperation between the two forces.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 3 minutes 53 seconds 3 m 53 s Aid agencies warn of refugee crisis in Iraq

"There will be closer cooperation between Baghdad and the regional Kurdistan government to work together and flush out these foreign fighters," Mr Zebari said.

The Kurdish leadership have long been a force in the jockeying between Shiites, Kurds and Sunnis for influence and control of northern Iraqi oilfields.

The United States, which pulled its troops out from Iraq two-and-a-half years ago, pledged to help Iraqi leaders "push back against this aggression" as prime minister Nuri al-Maliki's government asked parliament to declare a state of emergency.

It said Washington would support "a strong, coordinated response", adding that "ISIS is not only a threat to the stability of Iraq, but a threat to the entire region".

Reuters/AFP