REPORT: Islamic State grabs Iraqi dam and oilfield in victory over Kurds

Capture of the electricity-generating Mosul Dam, after an offensive of barely 24 hours, could give the Sunni militants the ability to flood major Iraqi cities or withhold water from farms, raising the stakes in their bid to topple Prime Minister Nuri al-Maliki's Shi'ite-led government.

"The terrorist gangs of the Islamic State have taken control of Mosul Dam after the withdrawal of Kurdish forces without a fight," said Iraqi state television.

The swift withdrawal of Kurdish "peshmerga" troops was an apparent severe blow to one of the only forces in Iraq that until now had stood firm against the Sunni Islamist fighters who aim to redraw the borders of the Middle East.

The Islamic State, which sees Iraq's majority Shi'ites as apostates who deserve to be killed, also seized the Ain Zalah oil field - adding to four others already under its control that provide funding for operations - and three towns.

Initially strong Kurdish resistance evaporated after the start of an offensive to take the town of Zumar. The Islamists then hoisted their black flags there, a ritual that has often preceded mass executions of their captured opponents and the imposition of an ideology even al-Qaeda finds excessive.

The group, which has declared a caliphate in parts of Iraq and Syria to rule over all Muslims, poses the biggest challenge to the stability of OPEC member Iraq since the fall of Saddam Hussein in 2003.

On Sunday its members were also involved in fighting in a border town far away in Lebanon, a sign of its ambitions across the frontiers of the Middle East.

It controls cities in Iraq's Tigris and Euphrates valleys north and west of Baghdad, and a swathe of Syria stretching from the Iraqi border in the east to Aleppo in the northwest.

Iraq's Kurds, who rule themselves in a northern enclave guarded by the "peshmerga" units, had expanded areas under their control in recent weeks while avoiding direct confrontation with the Islamic State, even as Iraqi central government troops fled.

But the towns lost on Sunday were in territory the Kurds had held for many years, undermining suggestions that the Islamic State's advance has helped the Kurdish cause.

Witnesses said Islamic State fighters were also trying to take control of the town of Rabia near the Syrian border and were engaged in clashes with Syrian Kurds who had crossed the frontier after Iraqi Kurds withdrew.

Islamic State fighters attacked Zumar from three directions in pick-up trucks mounted with weapons, defeating Kurdish forces that had poured reinforcements into the town, witnesses said.

The Islamic State later also seized the town of Sinjar, where witnesses said residents had fled after Kurdish fighters put up little resistance. It was not immediately clear why the Kurds, usually known as formidable fighters, pulled back without a fight.

On its Twitter site, the Islamic State posted a picture of one of its masked fighters holding up a pistol and sitting at the abandoned desk of the mayor of Sinjar. Behind him was the image of a famous Kurdish guerrilla leader.

In a statement on its website, the Islamic State said it had killed scores of peshmerga, the Kurdish fighters whose name means "those who confront death". Those deaths could not be independently verified.

Maliki's opponents say the Prime Minister, a Shi'ite Islamist who is negotiating to try to stay in power for a third term after an inconclusive parliamentary election in April, is to blame for galvanizing the insurgency by excluding Sunnis from power. Kurdish leaders have also called for Maliki to step down to create a more inclusive government in Baghdad.

The Kurds have long dreamed of their own independent state, an aspiration that has angered Maliki, who has frequently clashed with the non-Arabs over budgets, land and oil.

Islamic State fighters were among militants who clashed with Lebanese forces overnight in and around Lebanon's border town of Arsal. At least 10 Lebanese soldiers and an unknown number of militants and civilians died in the fighting, security officials said.

There has been no indication so far whether the advance in northern Iraq and the fighting in Lebanon were coordinated.

On Friday, Saudi Arabia's King Abdullah urged regional leaders and religious scholars to prevent Islam from being hijacked by militants.

Sunni Saudi Arabia considers the Islamic State a terrorist organization, but Maliki and other Iraqi Shi'ites blame it for sustaining Sunni militancy by backing other sectarian groups.