By Weedah Hamzah

Beirut (dpa) - A US-backed alliance of Syrian Kurdish and Arab forces were Saturday closing in on a strategic dam held by Islamic State in northern Syria, a monitoring group said.

The Tishreen Dam is located about 22 kilometres from al-Raqqa, Islamic State's de-facto capital in Syria.

It is one of three major dams on the Euphrates River that flows from Turkey through Syria and into Iraq, and supplies much of northern Syria with electricity.

The Democratic Forces of Syria (DFS), a coalition comprising mainly local Kurds, Arabs and Assyrians, seized the eastern bank of the Euphrates close to Tishreen Dam on the north-eastern outskirts of Aleppo province, the Syrian Observatory for Human Rights said.

The Britain-based Observatory said the alliance fighters' advance resulted in cutting off a short road used by Islamic State between its strongholds in al-Raqqa in north-eastern Syria and Aleppo.

DFS insurgents are backed by a US-led air cover.

The Observatory cited unspecified casualties on both sides.

Syrian rebels first captured Tishreen Dam from government troops in December 2012. The dam has been under Islamic State's control since 2014.

According to Jane's Intelligence Review, Islamic State's control of key energy assets in Syria gives it considerable strategic leverage over the regime of Syrian President Bashar al-Assad.

The al-Qaeda splinter group rules vast territory in Syria and neighbouring Iraq.

Meanwhile, last-minute snags led to a "freeze" of what would have been an unprecedented deal between Islamic State and al-Assad's government, the Observatory said earlier in the day.

Under the UN-sponsored deal, hundreds of militants from Islamic State and other rebel groups were to be evacuated from the suburbs of the Syrian capital, Damascus.

The Observatory said the agreement was "frozen due to logistical issues."

Some 3,620 people were to be given safe passage out of Damascus' southern districts of al-Hajar al-Aswad and al-Qadam, besieged by al-Assad's forces.

The would-be evacuees include civilians, but also 2,090 fighters from Islamic State and al-Qaeda's Syria branch, al-Nusra Front.

"The agreement was frozen, but not cancelled, due to logistical issues such as ability of Islamic State to secure buses from its end, which were to transport evacuees from the south of Damascus to al-Raqqa," the Observatory said in a statement.

The monitoring group said that a dispute between members of al-Nusra Front and other Islamist rebels about where they should go from Damascus, was another obstacle.

They differed on whether they would head to rebel-held areas in the north-western province of Idlib or Aleppo, according to the Observatory.

No new date has been set for implementing the deal.

Islamic State in al-Qadam and al-Hajar al-Aswad used both districts to launch attacks into the neighbouring Yarmouk Palestinian refugee camp.

Fighters from the radical group first attacked the Yarmouk camp in April when they clashed with al-Nusra there for control of the sprawling site.

The camp has also seen clashes among rival rebel groups as well as between militants and al-Assad's forces for the last three years.

Several "local ceasefires" between other rebel groups and the Syrian government have secured safe passage for fighters in recent months in the country.