Australian fighter pilots will target Islamic State soldiers fleeing their Iraqi stronghold of Mosul, with coalition forces poised to assault the city in what looms as the toughest battle so far in the war against the jihadist group.
But Australian military chiefs fear a desperate IS will escalate roadside and car bombs in Baghdad and elsewhere in Iraq to delay an assault while encouraging followers globally to stage attacks. 
Planning is under way for the Iraqi army to re-take Mosul, with Australia's chief of operations Vice-Admiral David Johnston confident IS, also known as Daesh, is on the back foot.
"Indications are that the Daesh combat capacity is degraded, their morale is weakening and they are facing the increasing realisation that they are losing territory and influence and are increasingly on the defensive," he said.
 IS has lost 45 per cent of its territory in Iraq and 20 per cent in Syria, but Vice-Admiral Johnston would not be drawn on whether battlefield defeats would limit terror attacks around the world.
But losses had undermined IS credibility over its self-declared claim to control a caliphate, with signs it was crimping the group's recruitment of foreign fighters.
Vice-Admiral Johnston said Australian troops played an important role in training and advising Iraqi special forces that liberated Fallujah last month.
The battle was over sooner than expected after IS resistance collapsed, with US and Iraqi jets killing hundreds of panicked fighters.
He also said militarisation of the South China Sea was unwelcome but the Australian navy and air force would not step back from patrolling the region.
Tensions have risen after an international tribunal recently rejected Beijing's territorial claim to much of the South China Sea.
He expected the military status quo to remain but said Australia would continue its overflights and sea transits in the area.