Iraqi army closes in on Islamic State militants holed up west of Falluja

FALLUJA, Iraq, June 27 (Reuters) - Iraq's army sought on Monday to eliminate Islamic State militants holed up in farmland west of Falluja to keep them from launching a counterattack on the city a day after Baghdad declared victory over IS there.

Backed by air strikes from a U.S.-led coalition, Iraqi artillery bombarded targets as troops closed in on up to 150 insurgents in areas along the southern bank of the Euphrates river, an army officer participating in the operation said.

The government's recapture of Falluja, an hour's drive west of the capital, was part of a broader offensive against IS, which seized large swathes of Iraq's north and west in 2014 but is now being driven back by an array of forces.

Falluja's recovery lent fresh momentum to the campaign to retake Mosul, Iraq's second largest city and the biggest anywhere in the jihadists' self-proclaimed caliphate and which Prime Minister Haider al-Abadi has pledged to retake this year.

Colonel Ahmed al-Saidi, who participated in Monday's advance, said ground forces were moving cautiously to avoid triggering roadside bombs planted by Islamic State.

"They (holed-up militants) have two options: either they surrender or they get killed. We want to prevent them catching their breath and attacking our forces with car bombs."

Saidi said radio intercepts suggested the militants were running out of ammunition and he expected them to fold shortly.

The insurgents mounted limited resistance to Iraqi forces earlier this month inside Falluja before scattering after some commanders abandoned the fight, according to Iraqi officials.

The military's swift advance surprised many who anticipated a protracted battle for Falluja, a bastion of Sunni Muslim insurgency where some of the fiercest fighting of the U.S. occupation of Iraq took place in 2004 against Islamic State's forerunner, al Qaeda.

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Control of Falluja is now shared between the army, elite counter-terrorism forces and federal police. Some fighters from Shi'ite Muslim militias, which have held several outlying areas for months, are also present inside Falluja proper.

The army along with local police are expected to take full control in the coming days, a military source said.

Central districts of Falluja, which in January 2014 became the first Iraqi city to fall to Islamic State, were mostly quiet on Monday as bomb-removal operations along roadways and in buildings began in earnest.

Military sources said the city had been heavily mined by IS but the extent of damage to infrastructure and property could not be assessed easily.

Dozens of buildings across the city have been torched, something blamed by government forces on fleeing militants, though Reuters could not verify their accounts.

Some officials estimate that as little as 10 percent of Falluja had been destroyed, comparing that favorably with Ramadi and Sinjar, cities recaptured from Islamic State last year but widely devastated in the process.

A spokesman for the governor of Anbar province, where Falluja is located, said the worst damage had occurred in the southern industrial district where Islamic State had assembled car bombs used in attacks in Baghdad.

More than 85,000 civilians displaced by the fighting in the past month are waiting in government-run camps to return home; at least twice as many people fled Falluja during IS rule.