Gunmen seized part of a northern Iraqi town and nearby villages Thursday, while bombs killed at least two people at a historic Baghdad market and set it ablaze, officials said.

The takeover in and around the Salaheddin provincial town of Sulaiman Bek comes as gunmen control all of one major city and part of another in the western province of Anbar in a stand-off that has lasted for weeks and displaced hundreds of thousands of people.

It illustrates the scope of the security problems the country faces, the reach of militant groups and the inability of the armed forces to bring them under control.

The Sulaiman Bek violence began when militants armed with light and medium weapons attacked army positions and overran the town centre early on Thursday, local official Talib al-Bayati said.

Some called over mosque loudspeakers for residents to leave, Bayati said, adding that soldiers subsequently surrounded the area and exchanged fire with militants.

Another local official, Shallal Abdul Baban, said militants were in control of western Sulaiman Bek and three nearby villages.

He reported sporadic clashes in the area, and said two policemen had been wounded.

The unrest followed a series of other attacks in the area, including one last July in which some 150 militants hit Sulaiman Bek with mortar rounds, rocket-propelled grenades and automatic weapons, and executed 14 Shiite Muslim truck drivers on a nearby highway.

The town was also briefly seized by militants in late April.

In Baghdad, two bomb blasts in the historic Shorjah market, which dates to the Abbassid era over 700 years ago, killed at least two people and wounded at least 11, officials said.

An AFP journalist said one bomb exploded in the perfume market and the second hit an area where clothes are sold.

The explosions sparked fires, the largest of which raged through the perfume market, sending a pillar of black smoke skywards.

United Nations Iraq envoy Nickolay Mladenov warned Thursday of dire conditions in Fallujah, a city in Anbar to the west of Baghdad that gunmen have controlled, along with parts of provincial capital Ramadi, since January.

"I am particularly concerned about the rapidly deteriorating conditions in Fallujah where many residents are caught up in the fighting," Mladenov said in a statement.

"The UN continues to urge for humanitarian access to the city."

Deputy Prime Minister Hussein al-Shahristani said a day before that Iraq's strategy for retaking the city currently consists of surrounding it and waiting for militants to run short of weapons and equipment.

But he said that other goods were allowed in.

The UN also said some 63,000 families have been displaced by the crisis in Anbar, bringing the estimated total number of people to more than 370,000.

Witnesses said gunmen attacked an army convoy north of Fallujah on Thursday, sparking clashes, and security forces shelled two areas in the north of the city.

Violence in Iraq has reached a level not seen since 2008, when it was just emerging from a period of brutal sectarian killings.

In the northern province of Kirkuk, a bomb killed two senior army officers, while other violence killed another two soldiers and a Sahwa anti-Al-Qaeda militiaman.

And attacks in Nineveh province, also in the north, killed a policeman and two civilians.

Foreign leaders have urged the Shiite-led Iraqi government to do more to reach out to the disaffected Sunni Arab minority to undercut support for militants.

But Prime Minister Nuri al-Maliki has taken a hard line ahead of a general election scheduled for April.

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