Iraq said Tuesday that Italian firm Trevi will repair and maintain the country's largest dam, which is in danger of a catastrophic collapse that would devastate areas to the south.

The Mosul Dam was built on an unstable foundation that continuously erodes, and a lapse in maintenance after the Islamic State jihadist group seized it in 2014 weakened the already flawed structure.

The dam has long been in danger of collapse, an event US officials have warned could send a huge wave crashing into IS-held Mosul, Iraq's second-largest city, about 40 kilometres (25 miles) away.

The Iraqi cabinet awarded Trevi the contract "to carry out the project of rehabilitating and maintaining the Mosul Dam," a government statement said.

The deal has yet to be signed, according to the statement, which did not specify how much Trevi would be paid for the work.

Italian Foreign Minister Paolo Gentiloni confirmed that the contract was awarded to Trevi.

"I think the contract will be signed in the next few days," he said in Rome.

Gentiloni said contributions by the United States and other anti-IS coalition members, along with the rules governing the deployment of Italian troops to protect the work site, "will have to be determined together with the coalition and the Baghdad government."

Italian Prime Minister Matteo Renzi said in December his country would send 450 troops to defend the dam, a decision linked to Trevi's interest in the project.

Italian forces are already in Iraq training police as part of international efforts to counter IS.

Italy also deployed forces to Iraq in 2003, and a bombing south of Baghdad killed 19 Italians in November of that year, the worst single attack on the country's forces since World War II.

- World's most dangerous dam -

Lieutenant General Sean MacFarland, the commander of the military operation against IS, said last week that the US had put measuring devices on the dam to monitor how much it is "moving or deteriorating over time".

If it does collapse, "it's gonna go fast," MacFarland said, adding that: "If this dam was in the United States... we would have taken that dam out of commission."

The dam stretches for more than three kilometres (two miles), holding back a huge winding reservoir fed by the Tigris River.

Since the dam's completion in 1984, the Iraqi government has sought to shore up the foundation by injecting mortar-like grout into the subsoil and cavities and controlling seepage, but this stopped in 2014 when IS briefly seized the structure.

Now, grouting work has resumed in the long, damp tunnel that stretches under the dam.

"Maintenance work is going on 24 hours" per day, with workers operating in three shifts, Riyadh Ezzedine al-Nuaimi, the dam's manager, told AFP.

Hussein Hamad Ahmed, an engineer at the dam, said workers drill down from the tunnel to a specific point, after which grout is pumped in to fill gaps that develop under the structure.

In 2007, the US ambassador to Iraq and the top American military commander in the country wrote a letter warning that the dam could fail with devastating results.

"A catastrophic failure of the Mosul Dam would result in flooding along the Tigris River all the way to Baghdad," the letter said.

"Assuming a worst case scenario, an instantaneous failure of Mosul Dam filled to its maximum operating level could result in a flood wave 20 metres (66 feet) deep at the city of Mosul," it said.

The US Army Corps of Engineers has said that "in terms of internal erosion potential of the foundation, Mosul dam is the most dangerous dam in the world."