IS members, disguised as soldiers, attacked a Hashed al-Shaabi unit in the Hawija region about 300 kilometres (185 miles) north of Baghdad on Sunday evening, the auxiliary force said in a statement.
"The attackers were dressed in military uniforms and during the fighting 27 of our heroes were martyred," added the Hashed, a key partner of the government in the battle against IS.
The paramilitary unit was conducting operations to "arrest terrorists and dismantle sleeping cells" around the city, in the province of Kirkuk.
They asked the Hashed paramilitaries to stop, get out of their vehicles and stand beside the road, on the pretext of conducting a search.
They then shot the Hashed fighters and fled, the official said.
Reinforcements arrived too late to stop the attack.
A senior police officer in the province, who also asked not to be named, said most of the bodies had been beheaded.
It was the deadliest attack against Hashed fighters since October when pro-government forces retook Hawija, which was the jihadists last urban bastion in northern Iraq.
But the Hashed says IS has not completely disappeared and that "sleeper cells" have been fighting a guerrilla waIRAQ-ISISr against it.
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