A Reuters correspondent saw the soldiers loading armored vehicles outside the village of Hassan Shami, a few miles east of the frontline. They told people present not to take photographs.
They spoke in English but their nationality was not clear. Reuters had earlier reported that they were American but this could not be confirmed officially.
Commenting on the ground deployment of coalition soldiers seen near the battle front, Baghdad-based spokesman for then coalition, U.S. Army Colonel Steve Warren, said: "U.S. and coalition forces are conducting advise and assist operations to help Kurdish Peshmerga forces".
He said he could not confirm which country those seen by Reuters were from.
"They may be Americans, they may be Canadians or from other nationalities," he said, when told that some forces were reported to be wearing maple leaf patches, the emblem of Canada.
The sighting of the servicemen near the frontline is a measure of the U.S.-led coalition's deepening involvement on the ground in Iraq as the war against Islamic State approaches its third year.
Iraqi Kurdish Peshmerga forces in the early hours of Sunday launched an attack to dislodge Islamic State fighters from villages located about 20 km (13 miles) east of Mosul on the road to the regional capital, Erbil.
Fighting appeared heavy. Pick up trucks raced back from the frontline with wounded people in the back, and two of the U.S.-led coalition servicemen helped haul one man onto a stretcher.
Gunfire and airstrikes could be heard at a distance, while Apache helicopters flew overhead. One of the villages, Mufti, was captured by mid-day, the Kurdistan Region Security Council said in a statement.
Mosul, with a pre-war population of about 2 million, is the largest city under control of the militants in both Iraq and Syria. Iraqi Prime Minister Haider al-Abadi at the end of last year expressed hope that the "final victory" in the war on Islamic State would come in 2016 with the capture of Mosul.
About 5,500 Peshmergas are taking part in Sunday's operation, said the Kurdish Region Security council.
"This is one of the many shaping operations expected to increase pressure on ISIL in and around Mosul in preparation for an eventual assault on the city,'' the council said.
The Peshmerga have driven the militants back in northern Iraq last year with the help of airstrikes from a U.S.-led coalition, and are positioned around Mosul in an arc running from northwest of the city to southeast.
The Iraqi army is also keeping up the pressure on Islamic State in their stronghold of Falluja, 50 kilometers (32 miles) west of Baghdad, in central Iraq.
Backed by Shi'ite militias on the ground and airstrikes from the U.S.-led coalition, the army is about to complete the encirclement of the city in an operation that started on May 23, state TV said Sunday citing military statements.
Counter-terrorism forces specialized in urban warfare have taken up positions around Falluja and should begin advancing in inside the city when the encirclement is complete, the TV said.