* Islamic State extends gains in north, at Kurdish border post
* U.S. officials say Obama approves air drops, weighs airstrikes
* France, Pope urge international action to stop Islamists
* Residents flee biggest Christian town
* U.S. oil majors evacuate staff from Kurdish area (Adds U.S. denial of air strikes)
By Isabel Coles
ARBIL, Iraq, Aug 7 (Reuters) - Islamist militants surged across northern Iraq toward the capital of the Kurdish region on Thursday, sending tens of thousands of Christians fleeing for their lives, in an offensive that prompted talk of Western military action.
Reuters photographs showed what appeared to be Islamic State fighters controlling a checkpoint at the border area of the Kurdish semi-autonomous region, little over 30 minutes’ drive from Arbil, a city of 1.5 million that is headquarters of the Kurdish regional government and many businesses.
The fighters had raised the movement’s black flag over the guard post. However, a Kurdish security official denied that the militants were in control of the Khazer checkpoint, and the regional government said its forces were advancing and would “defeat the terrorists,” urging people to stay calm.
In Washington, a senior U.S. official said the Obama administration had approved military air drops of humanitarian supplies to help trapped religious minorities in Iraq and they could start at any time.
U.S. officials, confirming a New York Times report, said President Barack Obama was also weighing carrying out the first U.S. airstrikes in Iraq since a 2011 pullout of troops.
White House spokesman Josh Earnest said any U.S. military action would be “very limited in scope” and tied to Iraqi political reforms, adding: “There are no American military solutions to the problems in Iraq.”
News reports that the United States has struck targets in Iraq are not accurate, a Pentagon spokesman said on Thursday, as Islamist militants advanced across northern Iraq.
“Press reports that U.S. has conducted airstrikes in Iraq completely false,” Rear Admiral John Kirby said in a post on his Twitter feed. “No such action taken.”
Sunni militants captured Iraq’s biggest Christian town, Qaraqosh, prompting many residents to flee, fearing they would be subjected to the same demands the Sunni militants made in other captured areas: leave, convert to Islam or face death.
The Islamic State, considered more extreme than al Qaeda, sees Iraq’s majority Shi’ites and minorities such as Christians and Yazidis, a Kurdish ethno-religious community, as infidels.
U.N. Secretary-General Ban Ki-moon said he was “deeply appalled” by reports of attacks by Islamic State militants in Iraq and called on the international community to help the country’s government.
The U.N. Security Council was due to hold an emergency meeting on the crisis in Iraq. France had called for the meeting to “counter the terrorist threat in Iraq.”
French President Francois Hollande’s office said after he spoke by telephone with Kurdistan president Masoud Barzani that Paris was prepared to support forces engaged in the defence of Iraqi Kurdistan. It did not say how.
Shares in energy companies operating in Iraqi Kurdistan plummeted on news of the sweeping Islamist advance toward oilfields in the region.
U.S. oil major Chevron Corp said it was evacuating staff in light of the militants’ advance, and an industry source said Exxon Mobil Corp was also pulling out staff, although the company declined to comment on security concerns.
The Islamic State said in a statement on its Twitter account that its fighters had seized 15 towns, the strategic Mosul dam on the Tigris River and a military base, in an offensive that began during the weekend.
Kurdish officials say their forces still control the dam, Iraq’s biggest.
On Thursday, two witnesses told Reuters by telephone that Islamic State fighters had hoisted the group’s black flag over the dam, which could allow the militants to flood major cities or cut off significant water supplies and electricity.
The Sunni militants inflicted a humiliating defeat on Kurdish forces in the weekend sweep, prompting tens of thousands from the ancient Yazidi community to flee the town of Sinjar for surrounding mountains. A Kurdish government security adviser said its forces had staged a tactical withdrawal.
Facebook and Twitter were blocked in Kurdistan on Thursday, initially for 24 hours. A government official told Reuters the reason was to prevent militants from gathering any information about the movement of Kurdish forces from social media, and to stop rumours and panic.
The Kurdish Regional Government’s Ministry of Interior said in a statement that “our victory is close.”
The security adviser said many layers of security and a trench protected the regional capital. “Arbil city is fine,” he said.
The militants’ weekend capture of Sinjar, ancestral home of the Yazidi minority, prompted tens of thousands of people to flee to surrounding mountains, where they are at risk of starvation.
Some of the many thousands trapped on Sinjar mountain have been rescued in the past 24 hours, a spokesman for the U.N. Office for the Coordination of Humanitarian Affairs said, adding that 200,000 had fled the fighting. “This is a tragedy of immense proportions, impacting the lives of hundreds of thousands of people,” spokesman David Swanson said by telephone.
Many of the displaced people urgently need water, food, shelter and medicine, he said. A spokesman for the U.N. agency for children said many of the children on the mountain were suffering from dehydration and at least 40 had died.
Yazidis, regarded by the Islamic State as “devil worshippers”, risk being executed by the Sunni militants seeking to establish an Islamic empire and redraw the map of the Middle East.
Thousands of Iraqis, most of them Yazidis, are streaming to the border with neighbouring Turkey to flee the fighting, Turkish officials said.
The plight of fleeing Christians prompted Pope Francis to appeal to world leaders to help end what the Vatican called “the humanitarian tragedy now under way” in northern Iraq.
In Kirkuk, a strategic oil town in the north held by Kurdish forces since government troops melted away in June, 11 people were killed by two car bombs that exploded near a Shi’ite mosque holding displaced people, security and medical sources said.
In Baghdad, a suicide bomber blew himself up in a Shi’ite district, killing at least six people, police said. Earlier, a car bomb in another Shi’ite area of the capital killed 14.
Gains by the Islamic State have raised concerns that militants across the Arab world will follow their cue. During the weekend, the Sunni militants seized a border town in Lebanon, though they appear to have mostly withdrawn.
The Islamic State, which has declared a caliphate in the areas of Iraq and Syria it controls, clashed with Kurdish forces on Wednesday in the town of Makhmur, about 60 km (40 miles) southwest of Arbil.
Witnesses said the militants had seized Makhmur, but Kurdish officials told local media their forces remained in control there, and television channels broadcast footage of Kurdish peshmerga fighters driving around the town.
The mainly Christian town of Tilkaif, as well as Al Kwair, were overrun by militants, according to witnesses.
The Islamic State poses the biggest threat to Iraq’s integrity since the fall of Saddam Hussein in 2003. Its fighters and their Sunni allies also control a big chunk of western Iraq.
The group has deepened sectarian tensions, pushing the country back to the dark days of the civil war that peaked in 2006-2007 under U.S.-led occupation.
Bombings, kidnappings and executions are routine once again in Iraq, an OPEC member. Religious and ethnic minorities that have lived in the plains of the northern province of Nineveh are particularly vulnerable.
Sunni militants have been purging Shi’ite Muslims of the Shabak and ethnic Turkmen minorities from towns and villages in Nineveh, and last month set a deadline for Christians to leave the provincial capital Mosul or be killed.
The Islamic State’s gains have prompted Iraqi Prime Minister Nuri al-Maliki, a Shi’ite, to order his air force to help the Kurds, whose reputation as fearsome warriors was called into question by their defeat.
There were several air force strikes on Wednesday, including one the government said killed 60 “terrorists” in Mosul, but they did not appear to have broken the Islamic State’s momentum.
Critics blame Maliki for Iraq’s crisis, accusing him of promoting the interests of fellow Shi’ites at the expense of Sunnis. Heavily armed Sunni tribes support the Islamic State, though they do not share its ideology.
Maliki, who has ruled in a caretaker capacity since an inconclusive election in April, has defied calls by Sunnis, Kurds, some fellow Shi’ites and regional power broker Iran to give up his bid for a third term for the sake of Iraq’s unity.
Iraq’s National Alliance, a bloc compromising the biggest Shi’ite parties, is close to nominating a “nationally acceptable” figure to become prime minister, its spokesman said, suggesting Maliki would not be able to hold on.
Political deadlock over forming a new government has undermined efforts to confront the Sunni insurgents, who have threatened to march on Baghdad. (Additional reporting by Tom Miles in Geneva and James Mackenzie in Rome; Writing by Michael Georgy; Editing by Paul Taylor, Janet McBride, Will Waterman, David Stamp, Jonathan Oatis and Howard Goller)