The Islamic State has fast become one of the world's wealthiest terror groups, generating tens of millions of dollars a month from black market oil sales, ransoms and extortion, officials said Thursday.

It earns $1 million a day alone by selling crude oil from fields captured when the group swept across Iraq and Syria earlier this year, said David Cohen, Treasury undersecretary for terrorism and financial intelligence.

Because the group, also known as ISIL, has "amassed wealth at an unprecedented pace" from different sources than most terror groups, it presents a particular challenge to the US working to choke off money flows.

"We have no silver bullet, no secret weapon to empty ISIL's coffers overnight. This will be a sustained fight, and we are in the early stages," Cohen said, outlining what he called a three-pronged effort.

IS is now "considered the world's wealthiest and most financially sophisticated terrorist organization," said Marwan Muasher, vice president at the Carnegie Endowment for International Peace.

Unlike Al-Qaeda, IS does not attract most of its funds from deep-pocketed rich donors, often in Gulf countries, or from state sponsors.

Yet "with the important exception of some state-sponsored terrorist organizations, ISIL is probably the best-funded terrorist organization we have confronted," Cohen said, warning its revenue sources were "deep and diverse."

Oil sales alone from captured refineries are allowing the militants to produce some 50,000 barrels a day sold "at substantially discounted prices to a variety of middlemen, including from Turkey," who then resell it.

- Sex slaves -

Oil has also been sold to Kurds in Iraq, and Cohen said the administration was looking carefully at the middlemen involved in the smuggling.

"At some point there is someone in that chain of transactions who is involved in the legitimate or quasi-legitimate economy. They have a bank account. Their trucks may be insured," he said.

Even Syrian President Bashar al-Assad's regime, which is fighting IS as well as the moderate US-backed opposition, was buying oil from the militants, which in a bizarre twist comes from fields and refineries once under Syrian control.

The group has also pocketed about $20 million this year from kidnappings, particularly of journalists and European hostages.

And it demands money from local businesses in cities and towns through "a sophisticated extortion racket," plunders antiquities and sells off women and girls as sex slaves.

US air strikes have begun impeding the militants' ability to produce oil, and Turkish and Kurdish authorities have pledged to stop smuggling on their territory.

Cohen vowed the US would hit hard against those found buying illegal oil.

Sanctions would follow, he said, and it would not just be a question of cutting them off from the US banking system.

"We can also make it very difficult for them to find a bank anywhere that will touch their money or process their transactions," Cohen said.

Washington is also working with its allies to adopt the hard line taken by the US, and refuse to pay ransoms to free kidnap victims.

Much of the US focus has been on Gulf countries, which in the past have come under fire for allowing the financing of terror groups.

Significant progress has been made in countries like Saudi Arabia and the United Arab Emirates, Cohen said, both nations he has visited in the push against IS.

But in Qatar and Kuwait, seen in the past as "permissive jurisdictions for terrorist financing... there is more work to be done."

Despite the group's wealth, however, it still does not have enough money to pay for basic services to Iraqis in territory it has captured, and could face local opposition, Cohen said.

"A terrorist organization's financial strength turns on its ability to continue to tap into funding streams, its ability to use the funds that it has, and also its expenses," he told reporters later at the White House.

Iraq had earmarked some $2 billion for the local services in the provinces now under IS's control. The militants have nowhere near enough funds to meet the shortfall, Cohen said.