Around 160,000 people are trapped in the town of Azaz, unable to flee while Turkey's border remains closed
* Biggest IS advance for two years in Aleppo province
* Tens of thousands trapped between frontlines and Turkish border (Adds IRC statement)
By John Davison
BEIRUT, May 27 (Reuters) - Islamic State fighters captured territory from Syrian rebels near the Turkish border on Friday and inched closer to a town on a supply route for foreign-backed insurgents fighting the jihadists, a monitoring group said.
The hardline group has been fighting against rebels in the area for several months. The rebels, who are supplied via Turkey, last month staged a major push against Islamic State, but the group counter-attacked and beat them back.
The United States has identified the area north of Syria's former commercial hub Aleppo as a priority in the fight against the Islamic State group (IS).
The British-based Syrian Observatory for Human Rights said Friday's advance was the biggest by IS in Aleppo province for two years. It brought the jihadists to within 5 km (3 miles) of Azaz, a town near the border with Turkey through which insurgents have been supplied.
Islamic State said in a statement it had captured several villages near Azaz.
International medical charity Medecins Sans Frontieres said it evacuated patients and staff from a hospital in the area as the fighting got closer, and that tens of thousands of people were trapped between the frontlines and the Turkish border.
A Syrian NGO operating in the area said the latest assault by IS had displaced 20,000 more people towards Turkey.
The International Rescue Committee, a humanitarian organisation present in Azaz, said the IS advance had caused more than half the residents of a camp for 8,500 internally displaced persons to move elsewhere. It said people were "terrified for their lives".
Around 160,000 people are trapped in Azaz, unable to flee while Turkey's border remains closed and exit roads have been blocked, the IRC said.
The Observatory said the fighting had killed 30 rebel fighters and 11 members of Islamic State.
In April, Islamic State militants seized another strategic town near the Turkish border from rebel factions fighting under the banner of the Free Syrian Army.
Their advances on Friday encroach on a corridor of rebel-held territory that leads from the Turkish border down towards Aleppo city, which is divided between insurgent and government control.
Aleppo's northern countryside is the theatre of several separate battles between multiple warring sides in the five-year-old conflict, which has drawn in regional and world powers that back different groups.
Rebels supplied through Turkey have been fighting Islamic State and separately battling Kurdish forces in other areas.
Ankara, a major sponsor of groups fighting to topple President Bashar al-Assad, is concerned by Kurdish advances along its border, where the Kurdish YPG militia already controls an uninterrupted 400 km (250 mile) stretch. Turkey has shelled Kurdish positions inside Syria.
The United States supports the YPG and allied fighters in its battle against Islamic State farther east, including in Hasaka and Raqqa provinces.
Syrian government and allied forces are also fighting rebels north of Aleppo. The Observatory said more than 20 people including children died on Friday in air strikes on rebel-held parts of the city and areas to its northwest.
Separately, al Qaeda's Syrian affiliate Nusra Front and other insurgents late on Thursday seized control of a town south of Damascus from government forces, the Observatory said.
Nusra Front said in a statement it had captured Deir Khabiyeh, which is near an area where government forces and allies have sought to tighten control of a road leading south.
Last week, government forces and their Lebanese Hezbollah allies captured territory in Damascus's eastern suburbs from insurgents.
Nusra Front and Islamic State are rivals in the Syrian conflict and have been fighting each other, including near Damascus, in separate battles from those between insurgents and government forces. (Additional reporting by Lisa Barrington in Beirut and Dasha Afanasieva in Ankara; Editing by Mark Trevelyan)
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