The extremist group, which controls large areas of Syria and Iraq, has been trying to establish itself in Afghanistan, challenging the Taliban on their own turf.
Afghan security forces told UN sanctions monitors that about 10 per cent of the Taliban insurgency are IS sympathizers, according to the report by the UN's al Qaeda monitoring team.
"The number of groups and individuals who are openly declaring either loyalty to or sympathy with ISIL continues to grow in a number of provinces in Afghanistan," said the report.
Read: 'Islamic State' militants claim attack on Pak-Afghan border
Afghan government sources said "sightings of the groups with some form of ISIL branding" or sympathy were reported in 25 provinces in the war-torn country, it added.
The IS-backed groups "regularly engage" Afghan military forces, but fighting with other parts of the insurgency are rare, except in Nangarhar province where they are battling the Taliban for control of the drug trade.
Among the prominent IS fighters, the report singled out Abdul Rauf Khadem, a former Taliban adviser to Mullah Omar, who visited Iraq in October 2014 and has since formed his own group in Helmand and Farah provinces.
Khadem allegedly has been recruiting followers by paying out large sums of money.
Foreign fighters from Pakistan and Uzbekistan, some of whom have close ties to al Qaeda, have come under the IS banner after fleeing their country and have "rebranded themselves" in recent months, the report said.
Up to 70 IS fighters have come from Iraq and Syria and now form the core of the extremists' branch in Afghanistan, according to the report.
Afghan security authorities do not consider the growing emergence of Islamic State as an "immediate increased threat" but they are keeping an eye on the situation as a "potential new threat", it added.
Read: Islamic State struggle to make progress in Afghanistan
The UN monitoring team said IS had improved its propaganda in English in a sign of increased competition with the Taliban.
The Taliban, who have themselves often been accused of savagery during their 14-year insurgency, are seeking to appear as a bulwark against IS's brutality and as a legitimate group waging an Islamic war.
Earlier this month the Taliban condemned a "horrific" video that apparently showed IS fighters blowing up bound and blindfolded Afghan prisoners with explosives.
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