Human rights minister Mohammed Shia al-Sudani accused the Sunni Muslim insurgents - who have ordered the community they regard as "devil worshippers" to convert to Islam or die - of celebrating a "a vicious atrocity" with cheers and weapons waved in the air. No independent confirmation was available.
The US Central Command said drone aircraft and fighter jets had hit Islamic State armed trucks and mortar positions near Arbil, the capital of the autonomous Kurdish region which had been relatively stable throughout Iraq's years of turmoil until the insurgents swept across the north this summer.
Read: Islamic State militants tell 300 Yazidi families: convert or die
That marked a third successive day of US air strikes, and Central Command said in its statement that they were aimed at protecting Kurdish peshmerga forces as they face off against the militants near Arbil, the site of a US consulate and a US-Iraqi joint military operations centre.
The Islamic State's advance has forced tens of thousands to flee, threatened Arbil and provoked the first US attacks in the region since Washington withdrew troops from Iraq in late 2011, nearly nine years after invading to oust Saddam Hussein.
Sudani said in a telephone interview that accounts of the killings had come from people who had escaped town of Sinjar, an ancient home of the Yazidis, a Kurdish-speaking community whose religion has set them apart from Muslims and other local faiths.
Displaced Iraqis from the Yazidi community settle outside the camp of Bajid Kandala at Feeshkhabour town near the Syria-Iraq border, Iraq. (AP Photo)
"We have striking evidence obtained from Yazidis fleeing Sinjar and some who escaped death, and also crime scene images that show indisputably that the gangs of the Islamic State have executed at least 500 Yazidis after seizing Sinjar," he said.
"Some of the victims, including women and children were buried alive in scattered mass graves in and around Sinjar."
President Barack Obama warned on Saturday that there was no quick fix for the crisis that threatens to tear Iraq apart.
Kurdish regional president Masoud Barzani urged his allies to send arms to help his forces hold off the militants, who have bases across the Syrian border. During a visit by French foreign minister Laurent Fabius, Barzani said: "We are not fighting a terrorist organisation, we are fighting a terrorist state."
Another senior Kurdish official said Kurds retook two towns southwest of Arbil, Guwair and Makhmur, with the help of US strikes but said he did not expect a rapid end to the fighting.
Read: Iraq crisis: Obama authorises targeted air strikes to stop 'genocide' by ISIS jihadists
Taken as slaves
In comments likely to put pressure on Washington to step up its response to Islamic State, Iraqi rights minister Sudani said: "The terrorist Islamic State has also taken at least 300 Yazidi women as slaves and locked some of them inside a police station in Sinjar and transferred others to the town of Tal Afar. We are afraid they will take them outside the country.
"In some of the images we have obtained there are lines of dead Yazidis who have been shot in the head while the Islamic State fighters cheer and wave their weapons over the corpses," he added. "This is a vicious atrocity."
A deadline passed at midday on Sunday for 300 families from the Yazidi community - followers of a religion influenced by the Zoroastrianism of ancient Persia - to convert to Islam or die.
It was not immediately clear if the victims to whom the minister referred were from that group of families.
US military aircraft have dropped relief supplies to tens of thousands of Yazidis who have collected on the desert top of nearby Mount Sinjar, seeking shelter from the insurgents.
At the Vatican, Pope Francis held a silent prayer for victims of the Iraqi conflict, who include members of the Christian minority, during his weekly address on Sunday.
"Thousands of people, among them many Christians, banished brutally from their houses, children dying of hunger and thirst as they flee, women kidnapped, people massacred, violence of all kinds," he said.
"All of this deeply offends God and deeply offends humanity."
Read: US strikes, aid drops continue as Obama vows to save stranded Iraqis
Obama said it would take more than bombs to restore stability, and criticised Prime Minister Nuri al-Maliki's Shi'ite-led government for failing to share power with Iraq's Sunni minority, which was dominant under Saddam.
France joined the calls for Iraq's feuding leaders to form an inclusive government capable of countering the militants.
"Iraq is in need of a broad unity government, and all Iraqis should feel that they are represented in this government," foreign minister Fabius said.
"All Iraqis should feel they are represented to take part in this battle against terrorism," he told a news conference with his Iraqi counterpart in Baghdad.
Maliki's critics say his sectarian agenda has prompted heavily armed Sunni tribes to join the insurgency. But Maliki, serving in a caretaker capacity since an inconclusive election in April, has defied calls by Sunni, Kurds, fellow Shi'ites, regional power broker Iran and Iraq's top cleric to step aside for a less divisive leader.
The pressure from France came a day after Obama described the upheaval in the north as a "wake-up call" to Iraqis who have slipped back into sectarian bloodshed not seen since a civil war peaked in 2006-2007.
Nearly every day police report kidnappings, bombings and execution-style killings in many cities, towns and villages.
Kurds of the ethnic minority of Yazidis hold up a banner reading "Stop genocide against Yazidis in Iraq" as they march through the streets of Bielefeld. (Reuters)
The Islamic State, which sees Shi'ites as infidels who deserve to be killed, has met little resistance. Thousands of US-trained Iraqi soldiers fled when its Arab and foreign fighters swept through northern Iraq from eastern Syria in June.
The collapse of the Iraqi army prompted Kurds and Shi'ite militias to step in, with limited success.
The Sunni militants routed Kurds in their latest advance with tanks, artillery, mortars and vehicles seized from fleeing Iraqi troops, calling into question the Kurds' reputation as fearsome warriors.
A former head of German intelligence echoed the Kurdish plea for arms: "The Kurds are hopelessly outgunned," August Hanning told the Bild am Sonntag newspaper.
Read: Militants abandoning al Qaeda to join ISIS: Report
Iranian-trained Shi'ite militias may stand a better chance than the Kurds but they are accused of kidnapping and killing Sunnis, playing into the hands of the Islamic State, which also controls a large chunk of western Iraq.
After hammering Kurdish forces last week, the militants are just 30 minutes' drive from Arbil, the Iraqi Kurdish capital, which until now has been spared the sectarian bloodshed that has scarred other parts of Iraq for a decade.
The possibility of an attack on Arbil has prompted foreigners working for oil companies to leave the city and Kurds to stock up on AK-47 assault rifles at the arms bazaar.
In their latest sweep through the north, the Sunni insurgents routed Kurdish forces and seized a fifth oil field, several more villages and the biggest dam in Iraq - which could give them the ability to flood cities or cut off water and power supplies - hoisting their black flags up along the way.
After spending more than $2 trillion on its war in Iraq and losing thousands of soldiers, the United States must now find ways to tackle a group that is even more hardline than al-Qaeda and has threatened to march on Baghdad.
Full coverage: Iraq on the brink