The militant group, which controls parts of Iraq and Syria, has exploited a security vacuum in Libya as two rival governments struggle for power, four years after the ousting of Muammar Gaddafi.
ISIS took over the city of Sirte on Libya's central Mediterranean coast in stages this year, occupying government buildings and taking the city's airport last month.
The group has now also taken over the town of Harwa to the east of Sirte, according to a statement posted on social media. A military source confirmed militants were controlling Harwa, adding they had taken over government buildings.
ISIS has claimed responsibility for the killings of dozens of Egyptian and Ethiopian Christians, the storming of a luxury hotel in Tripoli and attacks on oilfields, as well as suicide bombings in several cities.
The group has a strong presence in the eastern city of Derna and has carried out suicide attacks in Benghazi, the main eastern city.
The government of Premier Abdullah al-Thinni has been based in the east since losing the capital Tripoli in August to a rival administration.
Since the murder of 20 Copts by the ISIS group in February Some 48,000 Egyptians fleeing the war-torn Libya.
The beheading was followed by retaliatory airstrikes by the Egyptian army on the group’s hotbeds in Derna, east of Libya.
Security deterioration has prevailed in Libya after terrorist militants controlled wide swaths of the country.