Qaraqosh, about 20 kms (13 miles) southeast of Mosul, was emptied of its population in 2014, when Islamic State swept through the region.
Iraqi special units earlier this week captured Bartella, a Christian village north of Qaraqosh.
The offensive that started on Monday to capture Mosul is backed by the US-led coalition. It is expected to become the biggest battle fought in Iraq since the US-led invasion in 2003. Islamic State also controls parts of Syria.
The army is also trying to advance on Mosul from the south while Kurdish Peshmerga fighters are holding fronts in the east and north.
A Reuters photographer on the southern front on Friday saw plumes of smoke rising from a sulfur factory that was under the control of Islamic State, filling the air with toxic gasses.
It was not clear if the militants set it on fire to cover their retreat or if it was damaged during the fighting.
Authorities in Kirkuk extended for a second day a curfew declared after Islamic State militants stormed police stations and other buildings in curfew in the northern oil city under control of Kurdish Peshmerga forces.
Iraqi Prime Minister Haider al-Abadi on Friday night ordered an army brigade to head to Kirkuk to assist the Peshmerga clear the remaining buildings still held by the militants.
Kurdish Peshmerga fighters took control of Kirkuk in 2014, after the Iraqi army withdrew from the region, fleeing an Islamic State advance through northern and western Iraq.
A total of 35 people have been killed since Friday in clashes of Kirkuk, including four Iranian technicians who were carrying maintenance work in a power station north of the city, according to a hospital source.
The toll does not include the jihadists who were killed or who blew themselves up during the fighting.
Kurdish leaders say they will never give up the ethnically mixed city, to which they, as well as Turkmen and Arabs, lay claim. Arabs complain that Kurds have since flooded to Kirkuk to tilt the demographic balance the other way.
