By Suleiman Al-Khalidi and Tom Perry

AMMAN/BEIRUT (Reuters) - U.S.-backed Syrian rebels were pushed back from the outskirts of an Islamic State-held town on the border with Iraq and a nearby air base on Wednesday after the jihadists mounted a counter- attack, two rebel sources said.

The New Syria Army rebel group had launched an operation on Tuesday aimed at capturing the town of Al-Bukamal from Islamic State and cutting supply and communications lines for the group between Syria and Iraq, the U.S. coalition fighting IS said.

One rebel source said Islamic State fighters had encircled the rebels in a surprise ambush. They had suffered heavy casualties and weapons had been seized by the jihadists, the source said.

"The news is not good. I can say our troops were trapped and suffered many casualties and several fighters were captured and even weapons were taken," he said.

A spokesman of the New Syria Army, Muzahem al Saloum, confirmed the group's fighters had retreated. "We have withdrawn to the outlying desert and the first stage of the campaign has ended," Saloum told Reuters.

The Syrian Observatory for Human Rights monitoring group said the New Syria Army had been driven entirely from the province of Deir al-Zor, where Al-Bukamal is located.

Saloum said most of their fighters had returned to their base at al-Tanf, a Syrian town southwest of Al-Bukamal at the border with Iraq and in neighboring Homs province, but that there was still fighting in the southern desert of Al-Bukamal.

Saloum said the fighters had at least succeeded in evicting IS from large swathes of desert territory around the town.

Amaq news agency, affiliated with IS, earlier said the group had killed 40 rebel fighters and captured 15 more in a counter-attack at the Hamadan air base north-west of the city.


Islamic State's capture in 2014 of Al-Bukamal, just a few kilometers (miles) from the Iraqi frontier, effectively erased the border between Syria and Iraq. Losing it would be a huge symbolic and strategic blow to the cross-border "caliphate" led by Abu Bakr al-Baghdadi.

The operation to recapture Al-Bukamal has come as IS faces a separate, U.S.-backed offensive in northern Syria designed to drive it away from the Turkish border.

The New Syria Army was formed some 18 months ago from insurgents driven from eastern Syria at the height of Islamic State's rapid expansion in 2014. Rebel sources say it has been trained with U.S. support.

A spokesman for the U.S.-led coalition battling IS said the coalition was providing "advice and assistance" to the New Syria Army, and had conducted eight large air strikes on IS targets near Al-Bukamal overnight in support.

The operation, which is continuing, "limits high speed routes for reinforcements, resupply and foreign fighters flowing between the countries (Iraq and Syria), thereby increasing the pressure across the so-called caliphate," U.S. army Col. Christopher Garver said.

The U.S.-led campaign against Islamic State has moved up a gear this month, with an alliance of militias including the Kurdish YPG launching a major offensive against the militant group in the city of Manbij in northern Syria.

In Iraq, the government this week declared victory over Islamic State in Falluja.

Syrian rebel sources say the rebel force has received military training in U.S.-run camps in Jordan, but most of their training was now being conducted in a main base at al-Tanf.

The New Syria Army's base in al-Tanf was hit twice earlier this month by Russian air strikes, even after the U.S. military used emergency channels to ask Moscow to stop after the first strike, U.S. officials say.

(Reporting by Tom Perry and Suleiman Al-Khalidi; additional reporting by John Davison and Yeganeh Torbati in Washington; Writing by Tom Perry; Editing by Gareth Jones)