The risk of Iraq's largest dam collapsing and unleashing a huge wave onto Mosul is affecting plans to retake the city from jihadists, an adviser to the premier's office said.

The Iraqi army is deploying thousands of soldiers to a northern base in preparation for operations to recapture the city, the largest urban centre in the Islamic State group's self-proclaimed caliphate.

Concern has grown that a failure of the unstable dam, which is about 40 kilometres (25 miles) northwest of the city, could wipe out most of Mosul and flood large parts of Baghdad.

The Americans "frequently refer to Katrina" and say a collapse of the Mosul Dam would be "a thousand times worse", the adviser to the office of Prime Minister Haider al-Abadi told reporters.

Hurricane Katrina ravaged the US city of New Orleans in 2005, killing nearly 2,000 people and leading to a wave of violence and looting that completely overwhelmed the authorities.

"If the dam busts, the centre of Mosul goes under water by about a 40-50 foot wave (12 to 15 metres)," the adviser said, speaking on condition of anonymity.

"It just disappears, so 500,000 people (are) killed within a few hours," he said.

He said another dam in Samarra, hundreds of miles downstream, would also burst. It is estimated the wave would still be several metres high when it reaches Baghdad.

A US assessment published on the Iraqi parliament's website on Monday said Mosul Dam was "at a signficantly higher risk of failure than originally understood."

Several high-level contacts have taken place between the US administration and Baghdad, with Washington pushing for repair work to be undertaken urgently.

Since the dam's completion in 1984, Iraq has sought to shore up the foundation by injecting mortar-like grout into cavities that develop under the structure.

Regular minor seismic activity in the dam area is now seen as a potential threat.

- 'Nightmare scenario' -

Fears are also growing that IS could weaponise the dam.

"If the attack on Mosul goes well, there is a nightmare scenario that Daesh (an Arabic acronym for IS) could itself strike the dam as they withdraw from Mosul," the adviser said.

He said the US-led coalition, whose primary role in retaking Mosul would be to carry out air strikes, is concerned that a major bombing campaign could have an impact on the nearby dam.

"They are worried about it, they are thinking carefully about what kind of munitions they use in the Mosul operation," the adviser said, but that concern is not known to have been raised by the coalition.

After retaking the city of Ramadi, anti-IS forces may attempt to strike the group in Mosul before recapturing smaller cities such as Fallujah or Hawijah.

Another concern as Iraq begins deploying troops southeast of the city is a mounting economic crisis.

The government of Iraq's autonomous Kurdistan region is struggling to pay its peshmerga forces, who currently control the dam and will likely play a significant part in any Mosul assault.

A tender for the dam repairs was won by Italian firm Trevi and Rome has agreed to deploy around 450 troops to protect engineering teams there.

"The Prime minister has agreed with the Kurdish peshmerga -- and the Americans back this -- that the peshmerga withdraw," the adviser said.

"When the Italian force comes in, the Italian force is responsible for the security of the dam, so there's no dispute over who's responsible," he said.

The adviser said Abadi hoped the contract would be signed within two weeks.

It is currently estimated at 284.5 million euros (around $320 million) and the World Bank is helping to finance it.

A warm winter could lead to early snow melt and the Italian firm is expected to swiftly begin work with a seven-month phase aimed at repairing the dam's lower gates.

The rest of the major work is expected to take at least another 18 months.

"The PM suspected that sub-contracting may lead to delays or corruption and has taken an active role in ensuring the contract is monitored and audited closely," the adviser said.

Iraq's water ministry has consistently played down the risk posed by the Mosul Dam.