(Adds Obama statement, Islamic State video)
* Dam's structural state has raised deep concern
* U.S. hits militant vehicles in new air strikes
By Ahmed Rasheed and Michael Georgy
BAGHDAD, Aug 18 (Reuters) - Iraqi and Kurdish forces recaptured Iraq's biggest dam from Islamist militants with the help of U.S. air strikes to secure a vital strategic objective in fighting that threatens to break up the country, Kurdish and U.S. officials said on Monday.
U.S. fighter, bomber and drone aircraft took part in the strikes on Islamic State positions near the Mosul Dam, the Pentagon said. The strikes damaged or destroyed six armed vehicles, a light armoured vehicle and other equipment.
The dam had given the militants control over power and water supplies, and any breach of the vulnerable structure would have threatened thousands of lives.
U.S. President Barack Obama said Iraqi and Kurdish forces had retaken the dam with U.S. help. U.S. air strikes this month are the first in Iraq since the United States pulled out in 2011
"This operation demonstrates that Iraqi and Kurdish forces are capable of working together in taking the fight to ISIS (Islamic State), and if they continue to do so they will have the strong support of the United States of America," Obama told a news conference.
As fighting intensified, Islamic State militants were said to have killed dozens of Kurdish fighters and captured 170 of them, according to a Twitter site that supports the group.
The Islamists' seizure of the Mosul hydroelectric dam in northern Iraq this month marked a stunning setback for Baghdad's Shi'ite-led authorities and raised fears the militants could cut electricity and water, or even blow up the shaky structure, causing huge loss of life and damage down the Tigris river valley.
"The failure of the Mosul Dam could threaten the lives of large numbers of civilians, threaten U.S. personnel and facilities - including the U.S. Embassy in Baghdad - and prevent the Iraqi government from providing critical services to the Iraqi populace," a senior U.S. administration official said in Washington.
Iraqi officials hailed what they said was a strategic victory in regaining control of the dam, and announced that the next objective would be to win back Mosul itself, the biggest city in northern Iraq which lies 40 km (25 miles) downstream.
Hoshiyar Zebari, a top Kurdish official, said Iraqi Kurd forces had captured the dam - blighted by structural problems since it was built by West German engineers for Saddam Hussein in the 1980s - with help from U.S. air strikes nearby.
"Taking the dam took longer than expected because Islamic State had planted land mines," he told Reuters.
Baghdad officials vowed to turn the tide against Islamic State, whose campaign to create a regional caliphate has threatened to tear Iraq apart.
"The new tactic of launching a quick attack shrouded by secrecy proved successful and we are determined to keep following the new assault tactics with help of intelligence provided by Americans," Sabah Nouri, a spokesman for Iraq's counter-terrorism unit, told Reuters.
"The next stop will be Mosul."
A dam employee contested the government's version of events.
"Islamic State fighters are still in full control over the dam's facilities and most of them are taking shelter near the sensitive places of the dam to avoid air strikes," the employee told Reuters. The employee gave no further details.
Engineers have repeatedly expressed concern about the state of the 3.5 km-wide (2.2 mile) dam since Saddam was overthrown in 2003.
Islamic State threatened in a video on Monday to attack U.S. targets "in any place" if American air strikes hit militants and said: "We will drown all of you in blood."
"MOST DANGEROUS DAM"
A 2006 U.S. Army Corps of Engineers report obtained by the Washington Post said the dam, which blocks the Tigris and holds 12 billion cubic metres of water, could flood two cities killing tens of thousands of people if it were destroyed or collapsed. The report called it "the most dangerous dam in the world."
A wall of water could surge as far as Baghdad, 400 km (250 miles) away.
At the time, Iraqi officials described the warnings as alarmist and said measures were being taken to shore up the dam that has been weakened by cavities caused by soil being washed out. These holes need to be constantly refilled but it is unclear whether this work has continued under the militants.
Zebari said officials from his community would join talks on forming a new, inclusive administration considered vital for battling the Sunni Muslim militants who have overrun much of the country.
Prime Minister Nuri al-Maliki stepped down last week after criticism that his policies, by favouring Shi'ites, had encouraged some members of the Sunni minority to join the Islamic State insurgency.
Haider al-Abadi, a fellow Shi'ite with a less confrontational reputation, has been appointed prime minister-designate to try to form a government including leaders of Iraq's main minorities. The aim is to form a united front to take on Islamic State. (Additional reporting by Sarah Young in London, Eric Beech, David Alexander, Jeff Mason, Steve Holland and Mark Felsenthal in Washington, and Nick Tattersall in Istanbul; Writing by David Stamp; Editing by Alastair Macdonald and Giles Elgood)