Sunni militants have advanced in western Iraq and killed 21 people after security forces withdrew from several towns, as US President Barack Obama warned the offensive could spill over into other regional nations.

The losses were the latest in a series of setbacks for Iraqi forces, which are struggling to hold their ground in the face of an insurgent onslaught that has displaced hundreds of thousands of people and sparked fears that the country could be torn apart.

The militants, led by the jihadist Islamic State of Iraq and the Levant (ISIL), seized the towns of Rawa and Ana after taking the Al-Qaim border crossing on Saturday, residents said.

They then gunned down 21 local leaders in Rawa and Ana in two days of violence, according to officers and doctors.

The government said its forces made a "tactical" withdrawal from the towns, control of which allows the militants to open a strategic route to neighbouring Syria where they also hold swathes of countryside along the Euphrates river valley.

ISIL aims to create an Islamic state incorporating both Iraq and Syria, where the group has become a major force in the rebellion against President Bashar al-Assad.