Iraqi Prime Minister Haider al-Abadi has ordered government forces to "hold their positions" in Ramadi, which has reportedly been seized by the so-called Islamic State group.
Prime Minister al-Abadi said troops, tribesmen and other elite forces "must hold their positions and preserve them and not allow Daesh (IS) to extend to other areas in Ramadi," spokesman Saad al-Hadithi said.
It follows a week of fierce fighting with Iraqi troops.
Ramadi is the last big obstacle between IS and the capital, Baghdad.
It is the capital of Iraq's western Anbar province, which is dominated by Sunni Muslims.
Mr al-Abadi signed off on the deployment of Shia militias to attempt to seize back the area, a move he previously resisted for fear of provoking a sectarian backlash.
Earlier, security sources said government forces evacuated a key military base after it came under attack by the insurgents ,who had already taken one of the last districts still holding out.
It is believed that at least 500 people have been killed in the offensive.
The militant group has posted a message on jihadist Internet forums saying "God has enabled the soldiers of the caliphate to cleanse all of Ramadi."
The US Defense Department, while not confirming the fall of Ramadi, sought to play down the impact on the broader Iraq military campaign of an Islamic State seizure of the city.
A spokesperson for the Pentagon said the loss of the city would not mean the overall Iraq military campaign was turning in favour of IS, but acknowledged it would give the group a "propaganda boost."
The Iraqi government had vowed to liberate Anbar after driving the militants from the city of Tikrit last month.
Earlier yesterday, Anbar provincial council member Athal Fahdawi described the situation in Ramadi as a "total collapse".
It was one of only a few towns and cities to have remained under government control in the vast desert terrain, which borders Saudi Arabia, Syria and Jordan.
