The Iraqi city of Mosul, which is held by Islamic State movement fighters, has become the second terrorist hot-spot to be declared off-limits to Australians under a new counterterrorism law aimed at deterring foreign fighters.

Foreign Minister Julie Bishop said Monday that the Mosul district in northern Iraq had been declared a so-called designated area under a section of the Criminal Code created in October last year.

That means that it is an offense under Australian law punishable by 10 years in prison to enter the district or to remain in it without a legitimate purpose.

The Syrian Islamic Statement group stronghold of al-Raqqa province became the first designated area under the law in December.

Bishop told Parliament the move would "starve" the Islamic State movement of foreign fighters.