Besides oil wells, Daesh also set a sulphur factory on fire, killing two civilians and forcing opposition forces to don protective masks.
Two Iraqi civilians have been killed and up to 1,000 people have been treated for breathing problems linked to fumes from a sulphur plant set ablaze during fighting with Daesh in northern Iraq.
Local residents and the US military said Daesh deliberately set the sulphur plant ablaze as they strove to repel an offensive by Iraqi government forces to drive them from Mosul, their last major stronghold in the country.
"We have had every type of person come in with breathing problems and burning eyes - children, adults, policemen, soldiers," said Qayyarra central hospital director Abdul Salam Jabbouri. Daesh set the sulphur on fire so nobody can come near them."
No deaths were reported at the hospital.
Most patients have been given oxygen and told to stay away from areas with high sulphur concentration, according to medical aide Saddam Ahmad, who was wearing a surgical mask.
ISIS torched part of the Mishraq sulphur plant between Qayarah and Mosul this afternoon. Toxic fumes over area now much worse. (image: NASA) pic.twitter.com/2Szhoyl8sf— Patrick Osgood (@PatrickOsgood) October 21, 2016
"We've had so many patients since yesterday that we're almost out of oxygen," Ahmad said.
Ali Ahmad Khalaf, 38, who lives in a nearby village, said he had moved his family to Qayyara to escape the fumes.
"The sulphur is very dangerous," Khalaf, wearing a surgical mask and a traditional dishdasha robe, said.
"Daesh just wants to kill us."
Standing nearby, Bassam Qazi overheard Khalaf and said, "I saw an old man who had choked and died from the smoke."
US officials said Daesh set the sulphur plant ablaze on Thursday during fighting around al-Mishraq, south of Mosul.
Operation Inherent Resolve, the official name of the US-led anti-Daesh coalition, said in a statement on Saturday it had provided more than 24,000 protective chemical masks to the Iraqi security forces and the allied Kurdish peshmerga fighters during training for the Mosul offensive.