The chemical attack by ISIS is the second of its kind over the last few days as Iraq forces struggle to liberate the denser western side of Mosul.
The militants are now surrounded in the northwestern quarter including the historic Old City, countering the offensive with booby traps, suicide motorbike attacks, sniper and mortar fire, occasionally using shells allegedly filled with toxic gas.
The war between Islamic State militants and Iraqi forces is taking a heavy toll on several hundred thousand civilians trapped inside the city, with severely malnourished babies reaching hospitals in government-held areas.
Maj. Gen. Joseph Martin, the commander of coalition ground forces in Iraq, says Iraqi forces were treated after a strike in western Mosul.
Gen. Martin declined to comment whether American and Australian military advisers who were attached to the Iraqi unit had been injured during the attack.
USA officials initially reported a mortar strike in September near US positions in the vicinity of a military airfield in the western part of al Qayyara, about 40 miles south of Mosul, had shown evidence of a chemical agent akin to mustard gas.
Progress has slowed considerably in Mosul because much of the fighting is now door-to-door.
"We have not confirmed exposure at this time", he told reporters at the Pentagon.
"They are being shot at, there are artillery barrages, families are running out of supplies, medicines are scarce and water is cut-off", she added.
Iraqi government forces have taken back most of it in a US -backed offensive launched in October, including the half that lies east of the Tigris river.