The lightning recapture of the small Euphrates valley town of Rawa in an offensive launched at dawn came as the jihadists were also under attack for a second day in the last town they still hold in Syria, Albu Kamal just over the border.
The Islamic State group (IS) has lost 95 percent of the cross-border "caliphate" it declared in Iraq and Syria in 2014, the US-led coalition fighting it said on Wednesday.
Government troops and paramilitary units "liberated the whole of Rawa and raised the Iraqi flag on all of its official buildings," General Abdelamir Yarallah of Iraq's Joint Operations Command (JOC) said in a statement.
An army general contacted by AFP at the front had predicted that the battle would be swift as "the majority of IS fighters who were in the town have fled towards the Syrian border."
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The JOC said appeals had been made for several days to the town's Sunni Arab residents to listen to radio broadcasts for instructions on what to do when the army entered.
The stretch of Euphrates valley abutting the border with Syria has long been a bastion of Sunni Arab insurgency, first against US-led troops after the invasion of 2003 and then against the Shiite-led government in Baghdad.
The porous frontier became a magnet for foreign fighters entering Iraq from Syria, which Baghdad accused of turning a blind eye, and a key smuggling route for arms and illicit goods.
US-led troops carried out repeated operations with code names like Matador and Steel Curtain in 2005 to flush out Al- Qaeda jihadists.
The jihadists once controlled a territory the size of Britain but they have successively lost all their key strongholds, including Raqa in Syria and Mosul in Iraq.
Over the border in Syria, IS still holds around 25 percent of the countryside of Deir Ezzor province but are under attack not only by government forces but also by US- backed Kurdish-led fighters.
In the border town of Albu Kamal, the Syrian army was battling IS fighters who mounted a surprise counterattack last week, pushing out government forces who had retaken it last month.
"More than 7.5 million people have now been liberated" from IS, Washington's envoy to the coalition, Brett McGurk, said late Wednesday, adding that the group's finances are now "at their lowest levels to date".
With the jihadists' dreams of statehood lying in tatters following the battlefield defeats, Western attention is increasingly pivoting to trying to block foreign fighters from returning home to carry out attacks.
"We are enhancing cooperation and border security, aviation security, law enforcement, financial sanctions, counter-messaging, and intelligence sharing to prevent ISIS from carrying out attacks in our homelands," he said.
Analysts have warned that in some areas recaptured from IS, government control remains weak and the jihadists retain the capability to wage a low-level insurgency.
"We still have places by the Baghdad belt, areas including Ramadi and Fallujah... that are not well controlled at all," Michael Knights of the Washington Institute for Near East Policy told AFP earlier this month.