President Bashar al-Assad's forces held more than 90 per cent of the onetime opposition stronghold of east Aleppo, a monitor and military official said, and appeared on the verge of retaking the entire city.
A Syrian military official in Aleppo told AFP the "operation in eastern neighbourhoods is entering its final phase", as fierce clashes were reported in the few districts of the city left under rebel control.
The fall of Aleppo would deal the rebels their worst defeat since the beginning of Syria's conflict in 2011, and leave the government in control of the country's five major cities.
Syrian official media confirmed the retaking of Sheikh Saeed, with state television showing what it said was live footage from the neighbourhood.
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Only the districts of Mashhad and Sukkari remained under opposition control, said the Britain-based Observatory, with others divided between the opposition and advancing troops.
Overnight and into Monday morning, government warplanes and artillery pounded the remaining rebel-held territory in the east of the city.
An AFP correspondent in the government-held west of Aleppo said the bombardment could be heard from there and was some of the heaviest in recent days. Terrified residents have poured out of rebel-held neighbourhoods as the army advanced since beginning its operation on November 15.
On Sunday alone, state news agency SANA said, 8,000 people fled rebel districts through government-run crossings. It said about half were transferred to temporary shelters, while the rest were staying with relatives in west Aleppo.
And at least 3,500 civilians left east Aleppo neighbourhoods today, SANA reported.
Syria's rebels seized control of east Aleppo in 2012, a year into an uprising that began with anti-government protests but spiralled into a civil war after a regime crackdown.
IS began a new offensive in the desert east of Homs province last week, seizing government positions and oil fields before advancing on Palmyra. It was briefly forced back from the city yesterday, after heavy Russian air strikes and the arrival of Syrian troop reinforcements.
But despite the efforts, the Observatory said Sunday afternoon that the group had recaptured all of the city.
More than 300,000 people have been killed in Syria's war, and over half the country displaced.
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