Major General Christopher Ghika, the coalition's deputy commander, described the size of the last patch of land held by the jihadists as "now less than one percent of the original caliphate".
After driving the jihadists from their Syrian headquarters at Raqqa in October 2017, the SDF advanced southwards into Deir al-Zor province, attacking the jihadists in the territory on the eastern bank of the Euphrates River.
Earlier the USA officials have said that Islamic State has lost 99.5 per cent of its territory and has been reduced to fewer than 5 square kilometres in Syria, in the villages of the Middle Euphrates River Valley, where the bulk of the fighters are concentrated.
British, French, US and other forces are actively looking for wanted ISIS operatives among those fleeing the combat zone with civilians.
"The SDF have launched the final battle to crush ISIS in the village of Baghouz", the SDF said in a statement.
He later wrote on Twitter that the battle had started and the enclave would "be cleared soon".
US President Donald Trump predicted on Wednesday that ISIS will have lost all of its territory by next week. But activists and residents say Isis still has sleeper cells in Syria and Iraq, and is laying the groundwork for an insurgency.
According to the Observatory, more than 37,000 civilians, including dozens of IS militants, have fled the last IS-held pocket to areas controlled by the SDF in the eastern Euphrates region since last December.
The Britain-based Syrian Observatory for Human Rights said since the SDF began its offensive against ISIS in the area on September 10, about 1279 ISIS gunmen and 678 SDF fighters have been killed.
The conservative chancellor said monitoring events in Syria was one of the BND's top priorities, which also include tracking cyber threats and fake news created to influence democratic elections.
Governments in the jihadists' countries of origin are often reluctant, although France - which has one of the largest contingents - recently said it would consider limited repatriations. "There's been a total lack of transparency, and bad things happen in the dark", HRW's counterterrorism director, Nadim Houry, told AFP.