The alleged use of chemical weapons in Mosul, if confirmed, would be a war crime and a serious violation of international humanitarian law, the United Nations has warned.
"This is horrible," Lise Grande, the humanitarian co-ordinator in Iraq said in the statement.
"There is never justification, none whatsoever, for the use of chemical weapons."
The alleged attack happened this week in eastern Mosul, an area declared fully liberated by Iraqi forces in January.
The attack hit a neighbourhood along the Tigris River, which roughly divides the city in two.
Doctors in an urgent care hospital in the nearby city of Irbil say they began receiving patients showing symptoms of chemical weapons exposure on Thursday.
"The mortar hit our house, right inside the living room where we were sitting," said Nazim Hamid, whose children had burns to their faces, arms and legs.
The family was being treated in the Irbil hospital.
"There was a very bad smell, it was some kind of gas," he said. "My kids were affected, some of them were burned and some of them had difficulty breathing."
Hussein Qader, the deputy director of the hospital, said all 10 patients admitted for exposure are in stable condition and will be discharged in the coming days.
IS has used chemical weapons in Iraq and Syria at least 52 times according to a report published late last year by IHS conflict monitor, a London-based research and intelligence gathering group.
The report said that at least 19 of the 52 attacks took place in and around Mosul.
Iraqi and US-led coalition officials have repeatedly expressed concern regarding IS chemical weapons attacks.
However IS-claimed insurgent attacks in Iraq and attacks targeting civilians attempting to flee Mosul cause far greater numbers of injuries and deaths to civilians.
Most of western Mosul is still under Islamic State group control despite a handful of recent gains on the city's south-western edge by Iraqi forces over the past two weeks.
The US-led coalition campaign of airstrikes has been pivotal to securing those territorial gains, but has also resulted in civilian casualties and damage to infrastructure.
Coalition airstrikes in Iraq and Syria between November and January killed 19 civilians and wounded two, according to a statement from the Pentagon on Saturday.
The report brings the total number of civilian casualties acknowledged by the coalition to at least 220, according to the Pentagon.
Independent monitoring organisations put the number of civilian casualties much higher.
Airwars, an independent monitoring group based in London, estimates the minimum number of civilian casualties caused by airstrikes to be at least 2,463.
The Pentagon report added that 19 reports of strikes resulting in civilian casualties were still being assessed, 11 of which occurred in and around Mosul.
Iraqi forces launched the operation to retake Mosul in October and began a push to retake the city's western half last month.
After more than two years of slow territorial victories against IS by Iraqi ground forces backed by US-led coalition air power, western Mosul is the last significant urban area IS controls in Iraq.