The US-backed Syrian Democratic Forces (SDF) have pushed into the outskirts of the Islamic State group's stronghold of Manbij in northern Syria.
They were advancing slowly to the centre of town, an adviser to the predominantly Kurdish force and a monitoring group said.
The town lies along the only IS supply line between the Turkish border and the extremist group's self-styled capital, Raqqa. If Manbij is captured, it will be the biggest strategic defeat for IS in Syria since July 2015, when it lost the border town of Tal Abyad.
The Britain-based Syrian Observatory for Human Rights said fighting was taking place between IS fighters and the SDF on the south-western edge of Manbij.
Rami Abdurrahman, the director of the monitoring group which relies on a network of activists in Syria, said the SDF seized two squares on the western side of the city, then advanced toward a third square with air support from the US-led coalition.
An adviser to the SDF, Nasser Haj Mansour, said troops had moved into the town from its northern edge on Wednesday, close to grain silos, prompting clashes with IS militants. He confirmed that other troops entered Manbij from the west.
Journalist Mustafa Bali, who accompanied the SDF fighters on the front line on Wednesday, said it was only a matter of time before the silos are taken. They are separated from the city by a main highway, he said, estimating that the SDF are about 1.8 miles from the city centre and only one mile from the main city hospital.
"There are intense clashes on all the city's edges," Mr Bali said.
Abdurrahman said IS still controls the silos.
The US Central Command said in a statement on Thursday that the fighters of the Syrian Arab Coalition, which is part of the SDF, "have consolidated their position around Manbij in anticipation of the next phase of operations".
The US has embedded 300 Special Forces troops with the SDF. France has also confirmed it is providing training to the SDF.
The observatory said around 63 SDF fighters and 458 IS militants, including field operators and foreign fighters, have died in fighting in the Manbij campaign, which began on May 31.
Thousands of civilians have fled the town and surrounding areas, though some are beginning to return to their villages as they are cleared of IS fighters, according to the US central command.
The international coalition has since conducted more than 233 airstrikes in the vicinity of the town, according to the command.
The Islamic State's news agency Aamaq said the group's militants repelled an SDF advance from the town's north, adding that a suicide attack against the retreating forces killed many fighters.
Mr Mansour, the SDF adviser, said suicide bombings are no obstacle to advancing on Manbij.
"The tactic and their moves have become known and ineffective, particularly when there is always air support," he said.
Also on Thursday, at least eight civilians were killed in Syria's Aleppo when air strikes and mortar shells struck different neighbourhoods in opposite sides of the divided city, anti-government activists and Syrian state media reported.
In past months, Aleppo has witnessed some of the fiercest fighting and bombardment, which has claimed the lives of hundreds of people on both sides of the contested city. Partial ceasefires have failed to hold in the city that has been divided between rebel and government areas since 2012.
In Geneva, the UN's special adviser to Syria said he aimed to resume peace talks between the government and the opposition in July, though he stressed a return to talks would require the cooperation of Russia and the US, which back opposing sides in the war.
The last round of talks ended with the opposition walking out in April, citing the Syrian government's civilian siege tactics and its unwillingness to negotiate the release of political prisoners. Violence had escalating sharply around the country, as well, spelling the end of a partial ceasefire that came into effect in late February.
Staffan de Mistura said there was "substantial improvement" to humanitarian access to besieged areas in June, but indicated prospects of a truce remain distant.
"Looking at the cessation of hostilities in Idlib, Aleppo and other places, we are not getting good news," he said, calling on Russia and the US to help in bringing parties back to the negotiating table.
Humanitarian aid adviser Jan Egeland said officials were "very concerned" about the situation in the towns of Zabadani, Madaya, Foua, and Kafraya. The towns, two besieged by the pro-government forces and two besieged by rebels, have not received aid since April.
Pro-government forces have not allowed baby milk to civilians in Madaya in five months, according to local media activist Abdel Wahhab Ahmad. "We're facing a severe crisis," he said.
Mr Ahmad and other activists also reported that pro-government forces were burning farmland around Madaya and Zabadani.