The so-called Islamic State (IS) is "beginning to crack" under the onslaught of air strikes and counter-terror measures, a senior spokesman for the US-led coalition has said.
The flow of foreign fighters into Iraq and Syria to join IS - also known as Daesh - has been reduced as would-be jihadis realise "this caliphate isn't all unicorns and rainbows", Colonel Steve Warren said.
And the terror group is resorting to increasingly desperate measures including recruiting child soldiers and hiding bombs in copies of the Koran to keep hold of its territory, he said.
Speaking on a trip to Britain, Baghdad-based Col Warren said: "We believe that Daesh is now beginning to lose. We see them in a defensive crouch.
"We see them having lost about 40% of the territory that they held at the pinnacle of their strength in Iraq, and they have lost about 10% of the territory they once held in Syria.
"We believe this failure is due to several factors, the first and foremost I believe is the presence of devastating Coalition air power.
"Second is the increasing capability of the Iraqi security forces in Iraq.
"And third is the increasing cohesion, strength and unity of the 65-nation coalition that has come together to defeat Daesh.
"So we are starting to see fraying around the edges of this organisation. We are beginning to see the fraying around the edges of this outfit as they begin to crack underneath this pressure."
But Col Warren, the spokesman for the anti-IS coalition, warned that as the terror group is squeezed it will launch more Paris-style terror attacks in the West.
He said: "As we squeeze them and we begin to see them get chipped away at inside Iraq and Syria, we are going to see them look for other avenues.
"We have seen this in Libya, we have seen it in parts of North Africa and Afghanistan, we have seen this through high-visibility terror attacks in places like Paris, possibly San Bernardino, Ankara, other places.
"What I do know is that we have assessed that as we continue to squeeze this enemy, as this enemy continues to feel that it's back on its heels, our assessment is that one of the responses to that - it really is in desperation, that they are going to want to show the world that they are still viable - and one of the ways they can do that is through a high-visibility attack outside of their so-called caliphate borders."
He said an attack like the one in Paris, when 130 people were killed in co-ordinated attacks across the city, is not a sign of strength.
"We view it exactly the opposite", he said.
"We view it as a sign that because of the pressure that has been placed on them, because they are beginning to stumble a little bit, they are trying to either distract or prove that they are not finished yet."
IS has suffered a series of setbacks in recent months and has lost territory to Iraqi security forces.
Col Warren said extremists have resorted to horrific and desperate measures to cling on to power, including booby trapping areas they have been forced out of.
He said: "These guys are disgusting, they have left bombs in refrigerators, they have put bombs in toilets, they have put bombs inside the holy Koran - we found that on several occasions in Ramadi."
And as the tide of foreign fighters streaming into the country has stemmed, IS has resorted to forcing children to take up arms, he warned.
He said: "We have seen an increase in enforced conscription. We have seen an increase in the number of child soldiers, which is particularly concerning.
"And we have seen an increase in the use of more elite forces in more common units."
He added: "We have seen these elite Daesh forces, which are normally used in very specific units, have been farmed out to the grunt units to stiffen them a little bit."
A key part of the strategy was to take out high-profile targets such as Jihadi John, real name Mohammed Emwazi, who was killed in a drone strike last November.
Col Warren revealed Emwazi's death caused IS to turn in on itself and kill many of its own recruits.
He said: "When we killed Jihadi John we saw an immediate frenzy of activity inside of Daesh, where they rounded up their own fighters, there was a spike in executions over the next several days, and an adjustment to their communications.
"Why? These strikes see fear and paranoia inside the organisation."
More than 100 Iraqi IS senior and mid-level leaders have been killed since the summer - an average of one every two days - he said.
Col Warren warned that any British jihadis thinking about travelling to Iraq or Syria will probably be killed - either by air strikes or by IS itself.
And he claimed that message is beginning to get out, with a reduction of foreign fighters pouring into the region.
Asked why this is, he said: "I would like to attribute that to success - success of our efforts to show that the caliphate is not all the unicorns and rainbows that Daesh wants people to think it is.
"That word is starting to get out a little bit. If you move to the caliphate you are probably going to get killed by somebody."
But he warned the coalition is "not going to kill our way out" of the crisis, and peace will only be achieved through diplomacy.