Manbij is situated at an intersection of roads just south of the Turkish border.
It has been under IS control for more than two years,
Some IS militants are still present in the centre of the city, a UK-based monitoring group said.
The Syria Democratic Forces, a coalition of US-backed fighters including the powerful Kurdish YPG militia, launched a campaign to retake the city two months ago.
After some heavy fighting, Manbij was encircled and completely cut off in June.
Now the report from the Syrian Observatory for Human Rights, a UK-based group that relies on updates from people inside Syria, indicates that IS is being pushed out.
The roads in Manbij link the IS stronghold of Raqqa to the Turkish border and other areas under its control in Aleppo province.
The routes have become key to the group`s ability to move fighters, weapons and supplies in and out of Syria.
Syrian rebels `seize key town Manbij from IS
06 August 2016
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A US-backed alliance of Kurdish and Arab fighters has taken "almost complete control" of a strategically important Syrian city held by so-called Islamic State (IS), activists say.
