In October, Iraqi forces retook most of Dhuluiyah from IS, but the jihadists later launched a counter-offensive and were able to seize ground they had lost.
A Sunni tribe in the south of the town, 90 kilometres north of the capital, had been holding out against relentless attacks for nearly six months.
Iraqi forces launched their latest offensive on Friday, attacking jihadist positions on several fronts and capturing a string of villages south of Dhuluiyah, military officials said.
"The armed forces have entered Dhuluiyah... They are reinforcing their positions," an army officer told AFP.
He said soldiers were still facing some pockets of resistance from snipers and were treading carefully to avoid landmines sown by the jihadists.
A policeman who took part in the offensive confirmed that the airport just north of the town had been captured.
Iraqi forces are trying to tighten the noose around the jihadists, he said.
Dhuluiyah is strategically located on roads linking the eastern province of Diyala to Salaheddin province in the north.
Baiji is the largest town to be retaken by government troops since IS-led militants overran much of Iraq's Sunni Arab heartland in June, subsequently declaring an Islamic "caliphate" in Iraqi and Syrian territory.
After their victory in Baiji, an army brigadier said the military would seek next to isolate militants holding the city of Tikrit, home town of executed dictator Saddam Hussein, and also close in on Samarra.
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