The Shiite-led government in Baghdad has now asked parliament to declare a state of emergency.
The militants belong to the group called the Islamic State of Iraq and al-Shams (Isis), also known as the Islamic State of Iraq and Levant, and captured the mainly Kurdish city of around 1.7 million people after four days of fighting.
Residents said the group’s black flags and banners were flying from captured government buildings.
More than 1,000 prisoners were freed in one jail-break, mostly belonging to Isis and al-Qaeda, and 200 in another.
Sunni militants have been gaining ground in Iraq over the past year, over-running a military base there last week.
The army has been fighting Isis in western Iraq since the start of the year when its fighters over-ran two cities in the Sunni heartland of Anbar, which shares a border with Syria.
Across the frontier in Syria, Isis fighters have seized territory close to the Iraqi border during three years of civil war between president Bashar al-Assad’s forces and rebels. Militants from Iraq have joined the battle in Syria along with other foreign fighters with the aim of establishing a Sunni Islamist state straddling the border.
Iraqi prime minister Nouri al-Maliki has urged the international community to support his country in its fight against “terrorism” and asked parliament to declare a state of emergency, a vote on which will be held today.
“We have lost Mosul. Army and police forces left their positions and the terrorists are in full control,” said an army colonel at the local military command. “It’s a total collapse of the security forces.”
Army officers said security forces had received orders to leave Mosul after militants captured Ghizlani army base and set more than 200 inmates free from a high-security jail.
Policemen were seen swapping their uniforms for plainclothes and discarding their weapons before fleeing the city.
The bodies of soldiers and policemen, some of them mutilated, littered the streets.
“We can’t beat them. We can’t. They are well-trained in street fighting and we’re not. We need a whole army to drive them out of Mosul,” one officer said. “They’re like ghosts: they appear to hit and disappear in seconds”.
Two police sources said the militants had also broken into another jail called Badush, freeing more than 1,000 prisoners.
The retreating army and police set fire to fuel and ammunition depots to prevent militants using them, the officers said.
Sources in Iraqi security estimate more than 1,000 Shiite troops have been killed and thousands have deserted, as regular soldiers complain they lack proper equipment and training.
Mr Maliki’s opponents blame him for leading Iraq to ruin. They say his refusal to share power has prevented the creation of a national unity government, allowed for a rise in Sunni militancy, and made him enemies among Shiite, Sunni and Kurdish leaders alike. Dictator Saddam Hussein based his regime on Sunni, rather than Shiite support.
Thousands of families were yesterday fleeing north towards the autonomous Kurdistan region, which shares a border with Nineveh province, of which Mosul is the capital.
“Mosul now is like hell. It’s up in flames and death is everywhere,” said Amina Ibrahim, who was leaving with her children and said she lost her husband in a bomb attack last year.
On Monday, governor Atheel Nujaifi made a televised plea to the people of Mosul to stand their ground and fight. Hours later, Mr Nujaifi narrowly escaped after militants besieged his headquarters in Mosul.