Chemical weapons experts have determined that mustard gas was used during fighting in Syria in August, according to a report by an international watchdog seen by Reuters, the news agency reports.

The chemical - which causes severe delayed burns to the eyes, skin and lungs and is banned under international law - was used during a battle between Islamic State insurgents and another rebel group, diplomatic sources said.

The confidential October 29 report by the Organization for the Prohibition of Chemical Weapons (OPCW), a summary of which was shown to Reuters, concluded "with the utmost confidence that at least two people were exposed to sulfur mustard" in the town of Marea, north of Aleppo, on Aug. 21.

"It is very likely that the effects of sulfur mustard resulted in the death of a baby," it said.

The report provides the first official confirmation of use of sulfur mustard, commonly known as mustard gas, in Syria since it agreed to destroy its chemical weapons stockpile, which included sulfur mustard.

It poses a dilemma for the UN Security Council because Syria is supposed to have completely surrendered the toxic chemicals 18 months ago. Their use violates UN Security Council resolutions and the 1997 Chemical Weapons Convention.

Also "it raises the major question of where the sulfur mustard came from", one source said. "Either they (IS) gained the ability to make it themselves, or it may have come from an undeclared stockpile overtaken by IS. Both are worrying options."

The finding, which will be formally presented to UN Secretary General Ban Ki-moon later this month, adds to a growing body of evidence that the Islamic State group has obtained, and is using, chemical weapons in both Iraq and Syria.