Tikrit victory Iraqi army Isis
A member of the Iraqi security forces carries his weapon as he watches smoke rise from a scene of clashes between the Iraqi army and Islamic State militants in Tikrit Reuters

A car bomb which went off outside the US embassy in Iraq's Kurdish capital of Erbil has claimed the lives of three people as the Islamic State (Isis) claimed responsibility for the attack.

Eight others were injured in the explosion. Local reports suggest an American woman was also wounded, though it is yet to be independently confirmed.

The US State Department said it was a "vehicle-borne improvised explosive device" which exploded at the heavily-fortified compound.

"A car bomb exploded outside the entrance to the US consulate. It seems the consulate was the target," Nihad Qoja, the mayor of Erbil's city centre, told Reuters.

The explosive-laden car was detonated at about 17:45 local time in the Christian neighbourhood of Ainkawa, which is often frequented by Westerners. Heavy gunfire was reported following the blast.

"The fighters of the Islamic State detonated two car bombs in the heart of the Iraqi capital this evening and a third in Erbil," the Sunni extremist group militant group said via its channels.

Analysts say the Islamist organisation is flexing its muscles about its reach in the nerve-centre of Erbil, the capital of the semi-autonomous Kurdistan and the nucleus of US planning in Iraq operations.

In another development, the IS is also advancing relentlessly in Ramadi, the capital of the violence-stricken Anbar province. Over the last two weeks, Iraqi forces are quickly being overpowered by the militants in the area.