Iraqi Prime Minister Haider al-Abadi declared victory over the extremist group at the weekend, three years after IS first stormed the country and seized a third of its territory.

The declaration came after Iraqi forces recaptured the last areas still under IS control along the border with Syria. But while the territorial battle is over, coalition security forces now expect the group's remnants to engage in a new phase of deadly guerilla warfare.

Prime Minister Malcolm Turnbull congratulated the people of Iraq and their security forces for their "courage and determination".

"The liberation of Iraqi cities and towns from ISIS control has saved countless lives and ended a pattern of terror, anguish and murder," Mr Turnbull said.

"Their bravery in the face of unimaginable brutality has made the region and the world a safer place by robbing terrorists of their narrative of invincibility."

Australia has made a significant contribution to the fight, deploying hundreds of troops who have been focused primarily on training local troops and police. The Australian Defence Force has also contributed to air strikes against IS targets in Iraq and neighbouring Syria.

Australia's sixth rotation of about 300 troops - along with 100 New Zealand troops - deployed to Iraq in recent weeks and are scheduled to remain there until the middle of 2018.

There are no plans to cut short Task Group Taji 6's deployment but Australia will now enter talks with Iraq and coalition partners about the road ahead.

"While today's announcement by the Iraqi government is an historic moment, Iraq's liberation does not mean the fight against terrorism and ISIS in Iraq is over," Mr Turnbull said.

"ISIS fighters who escaped capture will seek to conduct an insurgency to continue their legacy of death and destruction. The biggest challenge is to bring security, peace and unity to all Iraqis through inclusive, representative democracy and political equality."

Mosul, Islamic State's de facto capital in Iraq, fell in July after a gruelling nine-month campaign backed by a US-led coalition that saw much of the northern Iraqi city destroyed. Islamic State's Syrian capital Raqqa also fell to a US-backed Kurdish-led coalition in September.

The group was then squeezed into an ever-shrinking pocket of the desert along the border.

Islamic State leader Abu Bakr al-Baghdadi released an audio recording on September 28 that indicated he was alive, after several reports he had been killed.

His followers imposed a reign of terrorism on the populations they controlled, alienating even many of those Sunni Muslims who had originally supported the group. They took thousands of women from the Yazidi minority as sex slaves and killed the men.

The war has had a devastating impact on the areas previously controlled by the militants, with more than 3 million people still displaced, according to the United Nations.

Iraq's announcement comes two days after the Russian military announced the defeat of the militants in neighbouring Syria, where Moscow is backing Syrian government forces.

With Reuters