"Fierce combat" had allowed government forces to push ISIS fighters away from the southern edge of Hasakeh, the capital of the province of the same name, The Observatory said.
"ISIS, which has been at the southern entrance of the city since Thursday, was forced to pull back two kilometres after fierce combat with Syrian Army," the Britain-based monitor group related to opposition said.
Syria's official SANA news agency also reported the fighting, saying the army had retaken several positions captured by ISIS in recent days, including an electricity station and a prison being used as a military base.
The Observatory said fighting was now continuing in the area near the prison.
ISIS began an assault on Hasakeh on May 30, advancing to the southern entrance to the city last week.
Control of Hasakeh city is shared between government forces and Kurdish fighters, who did not initially enter into combat against ISIS.
But the Kurdish forces began fighting ISIS on the outskirts of the areas under their control in the west of the city on Saturday night.
“The Kurdish involvement comes after criticism from figures in the town" about their lack of participation, Observatory director Rami Abdel Rahman said.
"There were several meetings at which the Kurds were urged to participate in the defence of the city, and they agreed after a decision that they would be recognised as a primary combat force in the city," he added.
Syria's Kurds have walked a careful line in the country's conflict, declining to join the conflict directly, but also not fighting alongside with the Syria Army.
In Hasakeh, they share control of the city's security with Syria Army forces, but the arrangement has been tense at times with skirmishes breaking out occasionally.
The ISIS assault on Hasakeh that began on May 30 has so far left at least 119 dead.