The dramatic fall of the Iraqi city of Ramadi to the Islamic State terror group is unlikely to prompt a rethink of the strategy being pursued by Australia and its allies, Fairfax Media understands.

But senior sources in Australia say the fall of the provincial capital west of Baghdad – regarded as the terror group's biggest victory this year - underscores the long road ahead for Iraqi security forces who still suffer from poor leadership and low morale.

One source said that the loss of Ramadi demonstrated that any talk of retaking the Islamic State's Iraq stronghold of Mosul in the north was just "empty talk".

As recently as February some US officials were openly talking about a push to retake Mosul, the largest city held by the Islamic State, in April or May.

Defence planners are now grappling with the fact that the Iraqi army is still prone to turning and running when faced with significant pressure.

Australia is deploying about 300 troops to train the Iraqis at Taji base north of Baghdad. It also still has a number of special forces "advise and assist" troops in Iraq, some stationed at al-Asad Air Base, about 100 kilometres west of Ramadi.

Fairfax Media understands the fall of Ramadi does not put them at greater immediate risk because they are able to move safely back and forth to Baghdad by air.

Peter Jennings, the executive director of the Australian Strategic Policy Institute, said the loss of Ramadi "has to be read as a serious setback compared with the sometimes unrealistically upbeat assessments we've been getting from the US about progress".

"The line from the Pentagon has been to say there's fluid movement on the battlefield," said Mr Jennings, who is also an external adviser to the government on the upcoming Defence white paper.

"But really what we've see here is not just a temporary change of hands. We've seen the Iraqi military quitting their posts as they did back in June last year and that suggests this is a consolidated gain [for the Islamic State]."

He said it suggested "we're in for an even longer haul than has been the Obama administration's estimate".

He said the recent US special forces assault in Syria that killed senior Islamic State commander Abu Sayyaf was a positive development, though he warned that such raids were risky and required "a very disciplined approach".

Mr Jennings said the best chance he could see for improvement on the ground in Iraq would be if Washington were prepared to send thousands more troops to "stiffen the resolve of the Iraqis". But this currently appeared unlikely.