The Syrian Democratic Forces (SDF), an alliance of Kurdish and Arab fighters, were in control of all but a fifth of Tabqa as of early today, a monitor said.
The city sits on a strategic supply route about 55 kilometres (35 miles) west of IS's main Syrian stronghold Raqa and served as a key IS command base.
The SDF broke into Tabqa from the south a week ago and have steadily advanced north, squeezing IS in three contiguous neighbourhoods on the bank of the Euphrates River.
"The SDF now controls more than 80 percent of Tabqa," Abdel Rahman said, with IS only holding the two northern neighbourhoods of Hurriyah and Wahdah.
Clashes and bombing raids by the US-led coalition rocked the city today, the Observatory said.
In the aptly named Flag Roundabout in Tabqa's west, an AFP correspondent yesterday saw an SDF fighter climb a ladder propped on a huge flagpole.
He triumphantly pulled down an enormous black IS flag, dropping it to the rubble-littered street as fellow fighters cheered and took pictures.
Other IS propaganda could still be seen around the city, including a billboard of a balaclava-wearing jihadist with three warplanes behind him.
"We will be victorious despite the global coalition," the billboard read.
The city is home to an estimated 85,000 people, including IS fighters from other areas, and is also adjacent to the strategic Tabqa dam, which remains under IS control.
To circumvent the dam, SDF fighters have been using a makeshift ferry to run supplies across Lake Assad, an enormous reservoir created by the barrier.
"Tabqa is the toughest battle we've ever waged," said SDF commander Jako Zerkeh, nicknamed "The Wolf".
Zerkeh said the SDF had used new tactics - including the waterway supply line and an airlift behind enemy lines in late March - to kickstart the offensive.
"These were a huge surprise to them (IS) and shattered their morale... Dozens of Daesh fighters have surrendered. There were more surrenders here than any other town," he told AFP.
The AFP correspondent in Tabqa yesterday saw SDF fighters guarding a group of blindfolded, bearded men that a security official said were suspected IS fighters.
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