Iraqi Prime Minister Nouri al Maliki has asked parliament to declare a state of emergency after militants seized control of key buildings in the country's second-largest city.
Security forces abandoned their posts in Mosul after fighters armed with machine guns and rocket-propelled grenade launchers overran the provincial government headquarters and other buildings.
An army colonel in the local military command said: "We have lost Mosul this morning. Army and police forces left their positions and ISIL terrorists are in full control.
"It's a total collapse for the security forces."
A burning vehicle belonging to the Iraqi security services in Mosul Mr al Maliki also said the government would arm citizens to fight the militants.
Hundreds of families have fled to the autonomous Kurdish region in Iraq's north. Cars and trucks are reportedly queuing at a checkpoint on the boundary to the region.
Militant fighters are now moving south towards neighbouring Salaheedin province, according to Iraqi parliament speaker Osama al Nujaifi.
Sky News Arabia sources say around 1,400 prisoners have been released after gunmen torched several police stations in Mosul, which is a former al Qaeda stronghold.
Prisoners walk free in Mosul Residents told the Associated Press detainees set free were seen roaming the streets in yellow jumpsuits.
The insurgents seized the government complex on Monday.
The fighters are believed to be affiliated with an al Qaeda splinter group, the Islamic State of Iraq and the Levant (ISIL), which is behind many attacks in the country.
The group was known as al Qaeda in Iraq until ties between the two organisations were cut earlier in 2014 following a power struggle.
The violence is the worst in many years Witnesses saw the militants hoisting black flags inscribed with the Islamic declaration used by ISIL, al Qaeda and other jihadist groups.
Government employee Um Karam said her family decided to flee on Tuesday after hearing about the the building's fall.
"The situation is chaotic inside the city and there is nobody to help us," the Christian mother-of-two said, using a nickname because of concern for her safety.
Ali Mahmoud, the media official for Nineveh province, said the fighters were able to overpower the building guards after a brief firefight.
Iraqis fleeing Nineveh province wait in their vehicles at a checkpoint Provincial governor Atheel al Nujaifi was in a nearby guest house at the time of the attack, but managed to escape unharmed.
The violence in Iraq is the worst since the sectarian bloodletting of 2006 and 2007.
ISIL insurgents and their allies retain control of Fallujah and other parts of Anbar province, which neighbours Nineveh province.
The fighters have also launched frequent attacks in the capital Baghdad, and in other parts of the country.
Several members of the Iraqi security forces were killed last week when insurgents launched an attack on the Sunni-dominated city of Samarra.
An Iraqi Kurdish security guard frisks a man at a checkpoint They took control of a number of districts before eventually retreating.
Insurgents also occupied a university in Anbar province, taking dozens of hostages before releasing many later on. Fifteen people remain missing.
There was also an explosion at a funeral in the central city of Baqouba for a Sunni university professor on Tuesday.
That attack has so far claimed 20 lives and left another 28 wounded.
Poline Akello was abducted from her home in Uganda and raped
Angelina Jolie at the summit this morning
Estella Nelson says babies are being targeted too
A separate attack in the state of Adamawa was foiled, police say
A protest held in Lagos called for the return of the Chibok schoolgirls
A policeman on the phone before the start of the Lagos rally
A rescuer makes his way down the cave. All pics: Bayerisches Rotes Kreuz
A man was transported to the cave by helicopter
Several people are in the rescue team
The team plans its route
They had to cover some difficult terrain
Rescuers were forced to squeeze through some narrow gaps
No attacks have been reported yet
The couple posing as the Joker and Harley Quinn. Pic: Facebook
Jerad Miller,31, and his wife Amanda, 22
The scene of the shooting on Sunday
Officers Alyn Beck, 41 (L) and Igor Soldo, 31, were killed in the attack
The victim leaves the screen as she realises intruders are in the house
Suspect Edgardo Martinez
Victims' relatives struggle with a security guard to get into court
The judge appealed to family members to stay calm
Salvage vessels near the upturned ferry
A memorial to those lost at sea 
Elisabetta Martini and Marco Coggiola
CCTV shows Coggiola appearing to hold the poison in his hand
The rat poison they allegedly used