A major Iraqi-led offensive to retake the city from the group has entered its third day.
Daesh could use chemical weapons to counter the Iraqi-led offensive in Mosul as the terrorist organisation continues to lose ground in its last major stronghold, US officials said.
The operation – which involves Iraqi government troops, the US military, local militias and Iraqi Kurdish peshmerga forces – has entered its third day.
A Reuters report quoted US officials as saying that Daesh could use chemical weapons to repel the offensive. Although, they added, Daesh's ability to develop such weapons is highly limited.
"Given ISIL's (Daesh) reprehensible behaviour and flagrant disregard for international standards and norms, this event is not surprising," an official told Reuters, speaking on condition of anonymity.
US President Barack Obama has already said it would be a "difficult fight."
"Mosul will be a difficult fight and there will be advances and setbacks," Obama said on Tuesday at a White House event.
The US said that while it expects Daesh to use chemical warfare, the group has only a limited ability to develop chemical weapons.
US forces said they found a sulphur mustard agent on Daesh munition fragments in a previously undisclosed incident on October 5.
Around 20 villages on the outskirts of Mosul were taken in the first 24 hours of the operation.
The battle is expected to take weeks. Approximately 1 million civilians live in Mosul, with the number of Daesh terrorists in the city estimated to be between 4,000 and 8,000.
Flushing Daesh out of Mosul would cut off the group's access to Iraq, confining it to neighbouring Syria.
Russia: terrorists should be destroyed on the spot
Russia on Wednesday warned the US-led coalition against driving Daesh from Iraq into Syria.
"It is necessary not to drive terrorists from one country to the other but to destroy them on the spot," chief of Russia's general staff Valery Gerasimov said in a statement.
He said Russia was focusing on "possible attempts by fighters to break out of Mosul" and "freely leave the city in the direction of Syria."
"We hope that our partners in the international coalition realise what freely roaming large IS gangs in the Middle East can lead to," he added, referring to Daesh.