A British sniper prevented what could have been a devastating suicide bomb attack, which could have killed hundreds of people, by taking out five terrorists using just three bullets.

The unnamed Special Air Service (SAS) sharpshooter fired the three shots at a distance of 800 metres somewhere in Mosul, an Iraqi city occupied by the Islamic State (ISIS), an unnamed Army source told the Daily Express.

The source said the SAS operation was conducted two weeks ago at a bomb factory in Mosul.

The SAS commander gave the veteran marksman the order to shoot upon seeing three men leaving the factory wearing heavy coats, despite the hot weather. This was a clear indication that the men were suicide bombers who were trying to hide the bombs in their vests or strapped in their bodies, the source said.

"This was a classic SAS mission," the military source said. "The unit had been operating in the area for several weeks, mainly working as spotters for airstrikes and gathering intelligence."

He said three weeks ago "the intelligence guys got information that a bomb factory had been set up in a nearby village."

He said the British military quickly dispatched a SAS unit to locate the bomb factory.

The SAS commandos later found out that the house the ISIS militants were using to make bombs was located in an area where there "were too many civilian homes nearby and children were often around," thus ruling out an airstrike.

"Instead, the SAS commander in Iraq decided to use a sniper team and the operation was a complete success.

"With just three well-aimed shots that single team has probably saved the lives of hundreds of innocent people," the source said.

He said the SAS sniper shot the first ISIS militant in the chest, detonating his explosive device and killing him instantly, along with two ISIS guards who sat in a nearby car.

The sharpshooter then aimed at a second terrorist, hitting him point-blank on the head.

As the third suicide bomber ran to get back to the bomb factory, a third bullet from the British sniper struck his body, detonating his explosive vest that blasted him to pieces.