BAGHDAD (Reuters) - Less than 10 percent of Iraqi territory remains in the hands of Islamic State, but battlefield advances have not been matched by better security inside Iraq, the country's defense minister said on Thursday.

Iraq is now mounting a campaign to retake Mosul, the de facto IS capital, after recapturing Falluja late last month. But a suicide bombing in Baghdad less than a week after Falluja fell killed almost 300 people, and bombings since then have taken at least 51 more lives.

"Progress in military performance must be paired with progress on the security file," Defence Minister Khalid al-Obeidi tweeted from Washington before a meeting of defense ministers from the U.S.-led coalition battling the ultra-hardline militants.

At its peak, IS had captured somewhere between 30 percent and 40 percent of Iraqi territory. The ground it holds has been drastically reduced, but the militants can still inflict tremendous damage in Iraq's towns and cities.

The suicide bombing in central Baghdad earlier this month, which killed at least 292 in one of the worst such attacks since the U.S.-led invasion in 2003, was a "stark example" of that failure, he said. IS claimed responsibility for the attack.

Obeidi said the battle for Mosul, which has gained momentum since the recapture of Falluja and a northern airbase, required airstrikes, intelligence, logistics and engineering support [nL8N1A30TM}.

He said he expects most residents, which he estimated at around 2 million, to flee Mosul as they've done in recent battles, and that the offensive would require coordination with peshmerga forces from the autonomous Kurdish region.

That population estimate is nearly double recent projections from the United Nations, which predicts displacement from Mosul will require the largest humanitarian relief operation in the world this year.

Obeidi acknowledged the need for political understandings about the offensive and post-IS management, but it is far from certain that Iraq can accomplish that before the battle begins.

Although Iraqi and U.S. officials have not announced a timetable for moving on the city, a senior Baghdad-based diplomat and a Western official have said Iraqi Prime Minister Haider al-Abadi wants to push into Mosul by October.

Western officials say retaking the city without a plan to restore security, basic services and governance, along with money and personnel to implement it, risks repeating the mistake U.S. President George W. Bush's administration made in 2003, by toppling one government without plans for a new one.

Mosul and its outskirts are a mosaic of different ethnic and religious groups lying between Turkey, Syria and Iraqi Kurdistan, and the fight against IS has exacerbated tensions among many of those communities.

Obeidi said Iraq needed the help of its allies in securing cities and borders, but that the participation of the Popular Mobilisation Forces (PMF), a coalition of mostly Iran-backed Shi'ite militias, would be determined by "military plans and a decision by the commander-in-chief".

Some PMF elements have been accused of rights violations in earlier battles, including Falluja. Obeidi condemned such abuses on Twitter as "a betrayal of the army's sacrifices" and said violators would be held accountable.

Speaking with a small group of journalists in Washington on Thursday, Obeidi said he expected Islamic State to use tactics it has used in past battles, in defending Mosul, ranging from IEDs (improvised explosive devices) to the use of trenches and tunnels.

Obeidi added that he did not expect the peshmerga forces to enter the city of Mosul.

"We won't even let them take part in the liberation of the city," the defense minister said through a translator.

(Reporting By Stephen Kalin and Idrees Ali; Editing by Larry King and Jonathan Oatis)