Retaking the Al-Tameem area from IS is a significant breakthrough for Iraqi forces, which have been fighting for months to secure territory around Ramadi, a major city west of Baghdad and the capital of the vast Anbar province.
"Today, our forces completely cleared the Al-Tameem area after a fierce battle against Daesh gunmen," Sabah al-Noman, the spokesman for Iraq's counter-terrorism service, told AFP, using an Arabic acronym for IS.
IS fighters "had no choice except to surrender or fight and they were completely destroyed," Noman said.
Iraqi forces were working to clear bombs planted by IS in Al-Tameem, which is bordered by a branch of the Euphrates River that divides it from the next jihadist-held area.
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IS overran large parts of Iraq in June 2014, including major territory in Anbar, which stretches from the borders with Syria, Jordan and Saudi Arabia to the western approach to Baghdad.
Shifting parts of Ramadi, located 100 kilometres from Baghdad, had been held by anti-government fighters since the beginning of 2014.