A senior Iraqi official said that Iraq is preparing a "major attack" to retake militant-held Fallujah west of Baghdad, adding that special forces have already conducted operations inside the city .
Washington said it would help Baghdad in its battle against Al-Qaeda-linked militants but that there would be no return of U.S troops.
The takeover of Fallujah and parts of Anbar provincial capital Ramadi, farther west, is the first time that militants have exercised such open control in major cities since the height of the bloody insurgency that followed the US-led invasion of 2003.
The regular army has paused on the edge of the city to allow residents time to leave, awaiting orders to launch "the attack to crush the terrorists".
Fallujah is in the hands of fighters of the Al-Qaeda-linked Islamic State of Iraq and the Levant (ISIL), a senior security official said on Saturday.
ISIL militants seized control of the village of Bubali near Ramadi after heavy fighting on Sunday, a witness said.
Iraqi ground forces commander Staff General "Ali Ghaidan Majeed" told AFP that security forces killed 11 militants from countries including Afghanistan and various Arab states on the highway from Baghdad to Fallujah.
On Friday and Saturday, more than 160 people were killed in the worst violence to hit Anbar province in years.
Fighting erupted in the Ramadi area on December 30, when security forces cleared a year-old protest camp where Sunni Arabs demonstrated against what they see as the marginalisation and targeting of their minority community by the Shiite-led government.
The violence then spread to Fallujah, and the subsequent withdrawal of security forces from parts of both cities cleared the way for militants to seize control.