Kurdish troops backed by US warplanes launched a bid to recapture Mosul dam, Iraq's largest, from jihadists.
Witnesses said the air strikes started early in the morning and reported that fighting was ongoing in the afternoon.
Peshmerga forces lost control of the dam on 7 August as IS fighters were sweeping the region.
IS fighters conquered one village after another and seizing other key infrastructure such as oil wells.
The dam on the Tigris river, on the southern shores of Mosul lake about 50km north of the city, provides electricity to much of the region.
It is crucial to irrigation in vast farming areas in Nineveh province.
In 2007 a letter was sent to the premier, Nuri al-Maliki, by the US ambassador Ryan Crocker and the former commander of US forces in Iraq, David Petraeus.
The letter warned of the consequences of a disaster at the dam, which was assessed to have serious structural weaknesses.
"A catastrophic failure of Mosul dam would result in flooding along the Tigris river all the way to Baghdad," the letter read.
"Assuming a worst case scenario, an instantaneous failure of Mosul dam filled to its maximum operating level could result in a flood wave 20 metres deep at the city of Mosul," it said.
The Islamic State has already resorted to the weaponisation of dams, as was the case earlier this year when it flooded large areas around the city of Fallujah, west of Baghdad.
However, Mosul is the main stronghold of the Iraqi part of the Islamic State's self-proclaimed "caliphate".
Earlier, Jihadist fighters blew up a Shia prayer hall in the Iraqi town of Jalawla and publicly executed the muezzin.
Islamic State (IS) fighters detained the muezzin, who calls for Muslim prayers, and blew up the Jalawla husseiniyah, a term used for a Shia place of worship.
Witnesses confirmed the execution, which came four days after IS militants wrested control of the town from Kurdish peshmerga forces following two of deadly fighting.
In Sayed Ahmad village north of Jalawla, IS fighters also executed six policemen, the same sources said.
Kurdish forces lost at least 10 fighters in the battle for Jalawla, a strategic choke-point 130 km northeast of Baghdad.
The IS's Sunni extremist fighters conquered large swathes of Iraq's Sunni heartland in June, while Diyala province is mixed.