Islamic militants have attacked Iraq's largest oil refinery, 155 miles north of the capital Baghdad, security chiefs say.

Fighters with the al Qaida-inspired Islamic State of Iraq and the Levant (Isis) began their attack last night and it continued into this morning.

The Beiji plant accounts for more than a quarter of the country's refining capacity, all of which goes towards domestic consumption for things like petrol, cooking oil and fuel for power stations.

Any lengthy outage at Beiji risks long lines at filling stations and electricity shortages, adding to the chaos already facing Iraq.

Isis fighters targeted the refinery with mortar shells, and a fire started on the facility periphery, security officials said.

At the height of the insurgency from 2004 to late 2007, the Beiji refinery was under the control of Sunni militants who used to siphon off crude and petroleum products to finance their operations.

Further north in the city of Tal Afar, fighting continued between government troops and Isis fighters who captured the city on Monday, chief military spokesman Lieutenant General Qassim al-Moussawi said.

He had no other details, but state television last night aired footage of army troops and armed volunteers disembarking from a C-130 transport plane at an airstrip near the city.

Tal Afar is close to the Syrian border and its capture strengthens Isis's plan to carve out an "Islamic emirate" that covers territory on both sides of the territory.

The Sunni militants have vowed to march to Baghdad and the Shiite holy cities of Karbala and Najaf in the worst threat to Iraq's stability since US troops left. The three cities are home to some of the most revered Shiite shrines.

The Islamic State also has tried to capture Samarra, north of Baghdad, home to another major Shiite shrine.

Some 275 armed American forces are being positioned in and around Iraq to help secure US assets as president Barack Obama considers an array of options for combating the Islamic militants, including air strikes or a contingent of special forces.