Qayyarah hospital has checked at least 500 people complaining of breathing problems over the past two days but officials announced Saturday that the fire had been extinguished.
"Daesh blew up the sulphur plant two days ago and that has led to the deaths of two people among the civilians in nearby villages," Iraqi General Qusay Hamid Kadhem told AFP, using an Arabic acronym for the Islamic State group (IS).
The senior officer of the interior ministry's elite rapid response force said "many others were injured as a result of the toxic smoke."
According to security and health sources in the area, where tens of thousands of Iraqi forces are involved in a massive offensive to wrest Mosul back from IS, the group torched at least part of the Mishraq sulphur factory on Wednesday.
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The blast released toxic fumes that were seen and felt by residents in the area and, early on Saturday, by forces and reporters around Qayyarah, one of the main staging bases of the anti-IS operation south of Mosul.
On Saturday morning, a haze of white smoke covered the Qayyarah base, making anything more than a few hundred metres away difficult to see.
It made people present in the area cough and their eyes water.
On the road north from Qayyarah, a huge column of white smoke marked the site of the sulphur factory fire, while black smoke rose from burning oil wells set alight by IS.
At the rudimentary health centre in Qayyarah, Doctor Khairi Awad said around 500 cases of people of all ages complaining of breathing problems had been recorded.
"They were treated with oxygen and eight cases were transferred to Makhmur hospital because we don't have the capabilities to handle more serious cases," he told AFP by phone.
General Kadhem admitted that the toxic fumes were also having an impact on military operations: "Of course, this is affecting our planned progress."
US measures on nearby base
A US official in Baghdad told reporters that American forces stationed at the main staging base of Qayyarah, south of Mosul, had taken out their gas masks as a precaution.
"There is a sulphur plant near Q-West," the military official said, speaking on condition of anonymity.
IS militants "found a storage pile of sulphur" and set it on fire, he said. "This caused a very large smoke plume."
The official explained that the wind had recently turned and started blowing the toxic cloud towards Qayyarah.
"There are people who have chosen to wear their protective gear," he said, playing down the risk and stressing that only basic protective equipment was being used.
"Nobody is hurt at this point," he added, referring to US personnel on the base.
"As a precaution, coalition personnel at sites affected by the smoke have been directed to limit their activity outdoors," a coalition statement said later Saturday.
"The enemy has used chemical weapons in the past, and we're going to make sure we are taking every measure to mitigate the risk to our forces," said Major General Gary J. Volesky, commander of the coalition's land component.
"Force protection is my number one priority here," he said in a separate statement, which also announced that 24,000 protective chemical masks had been distributed to Iraqi forces during training in preparation for the Mosul offensive.
US officials said samples were sent to a lab to determine "what, if any, concerns may result from this incident."
The sulphur release was believed to have been much smaller than that caused at the same plant in June 2003.
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