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Counter terrorism units have taken control of the centre of the city, which includes its historic Ottoman citadel.
"They raised the Iraqi flag on the citadel," General Abdulamir Yarallah, commander of military operations in the battle for Tal Afar, said in a statement.
The advance, less than a week into an assault on the strategic city, comes after Prime Minister Haider al-Abadi declared victory in July over the jihadists in Iraq's second city Mosul, where IS declared its "caliphate" in 2014.
Iraqi forces now hold "94 percent of the city, 27 out of 29" districts including the centre and citadel, according to the Joint Operations Command (JOC) which coordinates the anti-IS operation in Iraq.
The announcement on Saturday came as the French foreign and defence ministers visited Baghdad to announce a loan of 430 million euros ($512 million) to help the Iraqi economy in the face of low oil prices and the cost of battling the jihadists.
On Saturday, units also battled IS around Al-Ayadieh, 15 kilometres (10 miles) north of Tal Afar and strategically located on the road between the city and the Syrian border, Yarallah said.
In the whole Tal Afar region, "1,155 square kilometres of 1,655 square kilometres, or 70 percent of the area, have been taken" the JOC said.
Columns of smoke could be seen rising over the city after the Hashed al-Shaabi para military coalition fighting alongside government troops seized the Al-Khadra and Al-Jazeera districts.
Abbas Radhi, a Hashed al-Shaabi fighter, said IS had resisted the advance mostly with sniper fire.
"There are also booby-trapped cars, mortars. But they've been defeated, God willing," he said.
Government troops and units of the Hashed al-Shaabi, backed by a US-led coalition against IS, launched the assault last Sunday after weeks of coalition and Iraqi air strikes.
Tal Afar sits on a strategic route between IS-controlled territories in Syria and Mosul, 70 kilometres (40 miles) further east.
Progress in Tal Afar has been far more rapid than in Mosul, which fell to Iraqi forces only after a gruelling nine-month battle.
Officials have said they hope to announce victory by Eid al-Adha, the Muslim holiday set to start in Iraq on September 2.
Until its takeover by IS, Tal Afar was largely populated by Shiite Turkmen, whose beliefs are anathema to the Sunni jihadists.
Most of the city's 200,000-strong population fled after IS seized it.
Some members of Tal Afar's Sunni minority joined jihadist ranks, forming an IS contingent with a particular reputation for violence.
Pro-government forces faced an obstacle course of roads blocked with earth embankments and strategically parked trucks, as well as sniper fire and mortar shelling.
Troops also said they discovered a network of underground tunnels used by IS to launch attacks behind lines of already conquered territory or to escape.