Baiji is near the country's largest oil refinery and is only 150 km (90 miles) away from Mosul, Iraq's second largest city which fell to ISIL in June 2014.
The city has since changed hands several times in fierce clashes.
The Hashid Shaabi forces and Iraqi army soldiers began their assault from the south on Wednesday and managed to fight their way into the center of the city, military spokesman Colonel Mohammed al-Asadi said, Reuters reported.
The force was backed up by airstrikes from the US and Iraqi airforce, Asadi said.
An officer at the regional military command center told Reuters in July that crude oil storage tanks and pipelines at the refinery had been damaged beyond repair, while natural gas tanks and processing facilities, as well as the power station providing electricity to the refinery, had suffered damage.