Insurgents driving about 50 vehicles have surrounded the oil refinery in the town of Baiji, according to the Iraqi police.
The town is on the banks of the Tigris river, 30 miles north of Tikrit, a town which was seized by Islamist group ISIS yesterday.
An earlier OIl Ministry statement had said the refinery was "totally secured by the special forces and operating normally".
The Foreign Secretary has been clear on the threat of Isis, but he has ruled out the prospect of any UK military involvement in the crisis.
Iraq’s foreign minister, Hoshyar Zebari, is a natural diplomat. Polite, immaculately dressed, and blessed with a great memory.
Isis has paraded military equipment in Mosul it captured from when the Iraqi army fled in what some see as a "nightmare scenario."