The provincial official said that government forces entered Jurf al-Skhar, which fell to fighters from the Islamic State group in late July.
Col. Muthana Khalid, spokesman of the Babil provincial police, said the battle over the town left dozens of militants dead or wounded.
"Our soldiers raised the Iraqi flag over government offices and buildings in the town. It is another victory achieved against the terrorists," Khalid added.
State-run TV showed footage of Iraqi soldiers walking near Jurf al-Skhar police station and the municipal building. Also, explosive experts were shown detonating some roadside bombs planted by the insurgents in order to delay the advance of the Iraqi forces.
The cleared town lies on a road usually taken by Shite pilgrims who will be heading in droves to the holy Shiite city of Karbala next week in order to commemorate the death of Prophet Muhammad's grandson, Imam Hussein one of the most revered Shiite martyrs.
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