The SAS marksman fired one bullet that killed two men instantly before it ricocheted into a third during a November mission in a remote northern Iraqi village.
The sniper fired his single .338 Lapua Magnum bullet from a L115A sniper rifle from a range of 1,800m just as the senior ISIS members prepared to fire shots into a crowd of women and children.
A source told The Daily Star Sunday that the shooting happened during a covert SAS intelligence gathering as the troops monitored Islamic State-controlled areas while Iraqi forces advanced toward Mosul.
The SAS squad was tracking the IS members when dozens of women and children tried to flee from the extremists.
When the terrorists ordered the civilians to stop and pointed a machine gun at the crowd from a second-storey window, the SAS team decided they had no choice but to open fire and save the fleeing group.
The sniper, whose rifle was fitted with a suppressor to reduce noise, fired his once-in-a-lifetime shot.
The bullet first struck the man holding the machine gun in the head then hit a second terrorist in the chest. It passed through his body, ricocheted off a wall and hit a third man – who was in the same room – in the neck.
The source said the ‘shot was one in a million’ and added that he didn’t believe it was planned.
‘Alongside the sniper was an SAS spotter, who was watching the target through binoculars,’ he said. ‘The whole incident was over in a flash.’
The third man lasted for about 30 seconds before dying, while the others were killed instantly a source told The Star.
‘No one could quite believe what had happened,’ the source added.
The SAS team entered the house following the shooting and confirmed that the three men were dead. They took fingerprints and photos of the scene before leaving by helicopter.
The Ministry of Defence told MailOnline that it does not comment on SAS activity.
Iraqi forces launched in October a campaign backed by a US-led coalition to take back Mosul from the hardline Sunni group which captured the city in 2014, declaring from its Grand Mosque a ‘caliphate’ that also spanned parts of Syria.
Mosul is the last major city stronghold under Islamic State control in Iraq.
Islamic State detonated explosives in the largest hotel in western Mosul on Friday, in an attempt to destroy it and prevent Iraqi forces from using it as a landing spot or base in their offensive to capture the city, witnesses said on Sunday.
The Mosul Hotel, shaped as a step pyramid, appeared to be leaning to one side after the explosions, said two witnesses contacted by phone, requesting anonymity as the militants punish by death those caught communicating with the outside world.
The Mosul Hotel sits alongside the Tigris river that cuts the city into two halves. The explosion comes as Iraqi forces appear about to take full control of the eastern side and prepare to attack the western bank.