IS militants seized the industrial neighbourhood in the city of Deir Ezzor after a fierce offensive that began on Wednesday morning, the Syrian Observatory for Human Rights said.
The attack began when three IS suicide bombers drove explosive-laden cars into the neighbourhood, killing at least 11 members of pro-government forces, the Britain-based monitor said.
The ensuing "violent clashes, air strikes, and an exchange of shelling" brought the toll up to 26 government loyalists and 12 IS militants, according to the Observatory.
The jihadist group has been fighting for months to take Deir Ezzor city, including the adjacent military airport.
If Deir Ezzor city falls to IS, it would be the second provincial capital under the extremist group's control after Raqa in the north.
More than 250,000 people have been killed in Syria's conflict, which began in March 2011 as an anti-government protest movement but which has spiralled into a multi-sided war.
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