The Britain-based group said parents had reported the release of the children, who are believed to be aged between 13 and 15.
The group of 70 were among 153 school children, most of them boys, abducted by IS jihadists on May 29 in the northern province of Aleppo.
They were intercepted and taken hostage en route to their hometown of Ain al-Arab after sitting school exams in Aleppo city.
They were kidnapped around the area of Minbej, which has been targeted in recent days in air strikes by a US-led coalition fighting jihadists.
There were no immediate details on why the group decided to free the 70 additional hostages on Tuesday, and the Observatory said around 30 more children were still being held.
It said IS was refusing to hand over the 30 children because it said they had relatives in a key Kurdish party opposed to the jihadist group.
Ain al-Arab, known to the Kurds as Kobane, is now a major battleground between Kurdish fighters and IS.
IS fighters have been advancing towards it for the past two weeks, and are now just three kilometres (less than two miles) from the town in places, according to the Observatory.
The fighting has prompted a mass exodus of residents in the area, with at least 160,000 fleeing over the border into Turkey.
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