The town of Tal Afar, with a population of some 200,000 people, was taken just before dawn, Mayor Abdulal Abdoul told The Associated Press.
The town's ethnic mix of mostly ethnic Shiite and Sunni Turkomen raises the grim specter of large-scale atrocities by Sunni militants from the al-Qaida-inspired Islamic State of Iraq and the Levant, or ISIL, who already claim to have killed hundreds of Shiites in areas they captured last week.
Tal Afar's capture comes a week after Sunni militants took Iraq's second-largest city, Mosul, and Saddam Hussein's hometown of Tikrit in a lightening offensive that has plunged Iraq into its worst crisis since the 2011 withdrawal of U.S. troops.
A resident in Tal Afar, 420 kilometers (260 miles) northwest of Baghdad, confirmed the town's fall and said over the telephone that militants in pickup trucks mounted with machineguns and flying black jihadi banners were roaming the streets as gunfire rang out.
The local security force left the town before dawn, said Hadeer al-Abadi, who spoke to the AP as he prepared to head out of town with his family. Local tribesmen who continued to fight later surrendered to the militants, he said.
"Residents are gripped by fear and most of them have already left the town for areas held by Kurdish security forces," said al-Abadi.
Another resident, Haidar al-Taie, said an aircraft was dropping barrel bombs on militant positions inside the town on Monday morning and that many Shiite families had left the town on Sunday, shortly after fighting broke out.
Security at the U.S. Embassy in Baghdad was strengthened and some staff members were sent elsewhere in Iraq and to neighboring Jordan, the State Department said Sunday. A military official said about 150 Marines have been sent to Baghdad to help with embassy security.
The State Department also issued a travel warning for Iraq on Sunday night, which cautioned U.S. citizens to avoid "all but essential travel to Iraq." The warning said the Baghdad International Airport was "struck by mortar rounds and rockets" and that the international airport in Mosul has also been the target of militant assault.
However, a senior Baghdad airport official, Saad al-Khafagi, denied that the facility or surrounding areas have been hit. State-run Iraqiya television also denied the attack, quoting the Ministry of Transport.
A city of seven million, Baghdad is not in immediate danger of falling in the hands of the Sunni militants, but a string of bombings on Sunday killed 19 people and wounded more than 40. The violence added to the nervousness of the Iraqi capital's residents.
Security has been tightened around the city, particularly on its northern and western edges, and food prices have dramatically gone up because of the transportation disruptions on the main road heading north from the capital.
On Monday, Interior Ministry spokesman, Brig. Saad Maan Ibrahim, told a press conference that Iraqi security forces killed 56 "terrorists" and wounded 21 in operations just outside the capital over the last 24 hours. He made no mention of Tal Afar and left without taking any questions.
Tal Afar is only 150 kilometers (93 miles) from the border with Syria, where ISIL is fighting against President Bashar Assad's government and controls territory abutting the Iraqi border. It lies on a main highway heading from Mosul to Syria, boosting the Islamic State's drive to link areas under its control on both sides of the border.
Tal Afar's capture came just hours after Shiite Prime Minister Nouri al-Maliki, addressing volunteers joining the security forces, vowed to retake every inch of territory seized by the militants.
"We will march and liberate every inch they defaced, from the country's northernmost point to the southernmost point," al-Maliki said. The volunteers responded with Shiite chants.
Fighting in Tal Afar began on Sunday, with Iraqi government officials saying that ISIL fighters were firing rockets seized from military arms depots in the Mosul area. They said the local garrison suffered heavy casualties and the main hospital was unable to cope with the wounded, without providing exact numbers.
Over the weekend, militants posted graphic photos that appeared to show their gunmen massacring scores of captured Iraqi soldiers. The pictures, on a militant website, appear to show masked ISIL fighters loading the captives onto flatbed trucks before forcing them to lie face-down in a shallow ditch with their arms tied behind their backs. The final images show the bodies of the captives soaked in blood after being shot at several locations.
Iraq's chief military spokesman Lt. Gen. Qassim al-Moussawi confirmed the photos' authenticity and said he was aware of cases of mass murder of captured Iraqi soldiers in areas held by ISIL.
He told the AP that an examination of the images by military experts showed that about 170 soldiers were shot to death by the militants after their capture.
Captions on the photos showing the soldiers after they were shot say "hundreds have been liquidated," but the total numbers could not be verified.
U.S. State Department spokeswoman Jen Psaki said Sunday that a militants' claim of killing Iraqi troops "is horrifying and a true depiction of the bloodlust that those terrorists represent." She added that an ISIL claim that 1,700 were killed could not be confirmed by the U.S.
While the actual numbers were impossible to verify, the claim and the photos are likely to stoke Shiite fears of sectarian mass murder — precisely what the militants hoped would be achieved by boasting of the killings.
U.N. Secretary-General Ban Ki-moon said Monday that the reports of Islamic militants massacring Iraqi soldiers was "deeply disturbing" and warned in a statement against sectarian rhetoric that could inflame the conflict and carry grave implications for the entire region.
The grisly images could also sap the morale of Iraq's security forces and heighten sectarian tensions.
Thousands of Shiites are already heeding a call from their most revered spiritual leader to take up arms against the Sunni militants who have swept across the north in the worst instability in Iraq since the U.S. withdrawal in 2011.
ISIL has vowed to take the battle to Baghdad and cities farther south housing revered Shiite shrines.
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