Thousands of Syrian Kurds fled as the terrorist group’s militants, who have besieged the town for nearly three weeks, advanced towards its centre.
Turkey has historically been seen as the gateway between Europe and Asia.
The IS flag was visible from across the Turkish border atop a four-storey building close to the scene of some of the most intense clashes in recent days.
Capturing the town would give IS unbroken control of a long stretch of the Syrian-Turkish border.
Kobani official Idriss Nassanlast night warned Kobani might fall to IS fighters soon, with the group already in control of Mistenur, the strategic hill above the town.
Reacting to the development, 14 Turkish tanks were deployed on a hill overlooking the border ready to repel any attempted incursion by militants.
Turkey, a Nato member, said the alliance has drawn up a strategy to defend the country if it is attacked along its border with Syria.
Defence minister Ismet Yildiz said Nato did the planning at Turkey’s request as IS militants try to take Kobani.
He said: “If there is an attack, Nato’s joint defence mechanism will be activated.”
Nato Secretary-General Jens Stoltenberg vowed to protect Turkey saying: “Turkey should know Nato will be there if there is any spillover, any attacks on Turkey as a consequence of the violence we see in Syria.”
Two banners of the Islamic State group were raised over a Kobani building and a nearby hill.
Local sources inside Kobani confirmed the group, also known as ISIL and ISIS, had planted its flag but said that Kurdish forces had repelled their advances so far.
“ISIL have only planted a flag on one building on the eastern side of town,” said Ismail Eskin, a journalist in the town. “That is not inside the city, it’s on the eastern side. They are not inside the city. Intense clashes are continuing.”
The radical al Qaeda offshoot has been battling to seize the predominantly Kurdish town after taking over large swathes of territory in Syria and Iraq in recent months.
Air strikes by American and Gulf State warplanes have failed to halt the advance of the Islamists, who have besieged the town from three sides and pounded it with heavy artillery.
“During the day sometimes IS makes advances but YPG [a local defence group] pushes them back. There are clashes within the vicinity, but they are not inside the city, YPG is resisting,” said Pawer Mohammed Ali, a translator for the Kurdish Democratic Union Party inside Kobani.
Mortars have rained down on residential areas in Kobani and stray fire has hit Turkish territory in recent days, but Kurdish pleas for help have so far largely gone unanswered.
IS wants to take Kobani to consolidate a dramatic sweep across northern Iraq and Syria, in the name of an absolutist version of Sunni Islam, that has sent shockwaves through the Middle East.
Beheadings, mass killings and torture have spread fear of the group across the region, with villages emptying at the approach of pick-up trucks flying Islamic State’s black flag.
“If they enter Kobani, it will be a graveyard for us and for them. We will not let them enter Kobani as long as we live.” Esmat al-Sheikh, head of the Kobani Defence Authority, claimed.
“We either win or die. We will resist to the end,” he added as heavy weapons fire echoed from the eastern side of town.
Last night, the former head of the armed forces General Lord Richards of Herstmonceux warned hard-line Taleban fighters from Afghanistan could join forces with IS militants
His words came as the latest British military engagement saw two RAF Tornado jets use Paveway guided bombs to attack IS forces who were firing on Iraqi troops from a building near Ramadi.
However the leaders of the Kurdish resistance in Kobani have warned that air power was having a limited impact on the IS advances.
• The parents of the US aid worker Peter Kassig, held captive by the Islamic State group, have revealed that he told them in a letter he was afraid to die, but that he had converted to Islam voluntarily and was at peace with his beliefs.