By David Alexander

WASHINGTON (Reuters) - Islamic State militants are "dead set" on using chemical arms and are likely to try them again as Iraqi forces advance on Mosul, a Pentagon spokesman said on Monday, a week after a rocket with a possible chemical agent landed near U.S. troops.

The rocket fired Tuesday landed in an unpopulated area near Qayyara West base, several hundred yards from where hundreds of U.S. troops are working to prepare an airfield for an Iraqi offensive to recapture the city of Mosul. No one was hurt in the attack.

The shell initially tested positive for a mustard agent, but two subsequent tests have been inconclusive and the device is undergoing further tests, Navy Captain Jeff Davis, a Pentagon spokesman, told reporters.

"We fully recognize this is something that ISIL has done before. They've done it many times, at least a couple dozen that we know of where they have launched crude makeshift munitions that are filled with this mustard agent," Davis said using an acronym for the group.

An air strike by the U.S.-led military coalition destroyed an Islamic State chemical weapons factory on Friday near Qayyara, the second attack against a chemical arms facility this month.

Davis said Islamic State's ability to weaponize mustard agent has been rudimentary. The group typically uses a chemical powder bound together with oil, which leaves behind a telltale oil trace.

"It's not generally in a lethal concentration. It's more of an irritant than anything else, but again, not something we view as militarily significant," he said, noting that the gas form of mustard agent used in the First World War was far more lethal.

Even though Islamic State has not perfected the ability to weaponize chemicals, U.S. and Iraqi forces still have to be prepared for a chemical attack, Davis said.

"We recognize this is real. They're dead set on it. They would love to be able to use chemical weapons against us, against the Iraqis as they move forward," Davis said. "We are making every effort to make sure that we're ready for it."

He said U.S. troops deployed to the region have the training and equipment they need to defend against chemical attacks and are working to ensure the Iraqis are prepared and properly equipped as well.

Davis said the United States has provided more than 50,000 gas masks to Iraq, with about 40,000 going to Iraqi security forces.

(Reporting by David Alexander; Editing by Cynthia Osterman)