It is believed that the SAS soldiers were returning from a 10-day training programme for Peshmerga fighters.
The Alsatian, thought to have been trained by the US Army, was travelling with the group of British soldiers in a convoy of four vehicles.
The unsuspecting troops were caught unawares when they were trapped by a group of jihadis last month on the Kurdish border.
The convoy was hit by a homemade bomb as around 50 ISIS fighters attacked.
A US soldier travelling with the convoy let the heroic dog off the leash.
The angry dog ran snarling towards the ISIS fighters. The first jihadi was bitten on the neck and face. The dog then slashed at the second fighter's arm and leg.
The two ISIS fighters ran away in terror after being savaged by the Alsatian.
The dog escaped the battle unhurt and has been hailed a hero by troops after saving the British team's lives, British media reported.
"When the dog was unleashed it went after the greatest threat without consideration for its own safety - this is what they are trained to do," Daily Star Sunday quoted a source as saying.
It is thought that this is the first time that an attack dog has been used to directly save soldiers' lives in Iraq and Afghanistan, the reports said.
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