The Syrian Observatory for Human Rights said a number of armed groups in the Yarmuk camp in south Damascus "were able to regain control over all of the areas that IS had taken over."
The militants had overrun the camp on Wednesday, raising fears for thousands of civilians inside and giving IS a potential beachhead inside Syria's capital.
But armed Palestinian groups, backed by local rebels, launched a fightback later in the day.
"Syrian rebel groups entered the camp and helped the Palestinians push back IS in fierce clashes," said Rami Abdel Rahman, the head of the Observatory.
Anwar Abdel Hadi, director of political affairs for the Palestine Liberation Organisation in Damascus, said IS had been pushed "to the periphery" of the camp.
He said Aknaf Beit al-Maqdis, a group loyal to Palestinian movement Hamas, had clashed with IS overnight.
Six people were killed and 17 injured, he said, but he could not provide details on the toll.
The Britain-based Observatory said IS still controlled "some areas" in the camp and put the death toll at three.
The UN agency for Palestinian refugees, UNRWA, said it was "extremely concerned" about the safety of civilians in Yarmuk.
"UNRWA estimates that there are some 3,500 children among the 18,000 civilians living in Yarmuk. The intense armed clashes put these children at risk of serious injury and death," UNRWA spokesman Chris Gunness said.
Yarmuk, located only about six kilometres (four miles) from downtown Damascus, was once a thriving home to 160,000 Palestinian refugees and Syrians.
But it has been devastated by fighting and a tight blockade imposed by the army nearly two years ago that created dire humanitarian conditions.
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