Fighters from IS-affiliated Islamic State West Africa Province (ISWAP) took control of Baga on the shores of Lake Chad on Thursday after over-running military bases.
The jihadists established full control over the fishing town on Friday after sacking a naval base, forcing personnel to flee across the lake to a village on the Chadian side of the border.
Dozens of military trucks and armoured vehicles from Borno state capital Maiduguri arrived late Sunday at the garrison town of Monguno, 135 kilometres (84 miles) away, in readiness for the offensive, two military officers and militia sources told AFP on condition of anonymity.
"Military assets have been deployed to Monguno in preparation for an operation to recapture Baga from Boko Haram terrorists," said the first military officer.
Monguno residents reported seeing 40 military trucks carrying troops on Sunday evening.
"It is a marching order from the highest quarters to troops to get Baga back from Boko Haram terrorists who are now occupying the town," a second military source said.
"The offensive will start anytime soon," he added.
A militia force fighting alongside the military has also been called in to help retake Baga, said a militiaman in Monguno.
The Nigerian military has insisted the insurgents have already been pushed out of Baga, but fleeing residents and security sources refuted the claim.
Resident Abubakar Mamman who fled to Maiduguri on Sunday, said Baga was still under Boko Haram control.
"Boko Haram are in charge of all the three military bases in Baga. There is not a single soldier in the area," Mamman told AFP.
"All the soldiers have fled and it is Boko Haram fighters everywhere," he added.
The jihadists were said to be roaming around the town and killing civilian militiamen.
Mamman said the jihadists told residents they would not be harmed but people continued to leave on foot.
In January 2015 Boko Haram overran the multinational joint task force base (MNJTF) and took control of Baga after killing hundreds of residents. Thousands of people fled to Maiduguri.
The town was later retaken, but jihadists who occupy camps on many islands on Lake Chad have continued to attack the military and civilians in the area.
On Thursday the militants overran a naval base and a MNJTF post staffed by troops from Nigeria, Niger, Chad and Cameroon.
With the capture of Baga the jihadists control most areas around Lake Chad, security sources said.
ISWAP fighters had in recent days seized military locations in Kuros-Kauwa, Kukawa, Kekeno and Bunduram villages, the security and civilian sources.
On Saturday and Sunday the militants made three unsuccessful attempts to overrun Monguno.
"They (Boko Haram) suffered heavy losses in Monguno where troops deal them a huge blow," said the first military source in an account supported by a militiaman in Monguno.
Boko Haram's nine-year insurgency has killed 27,000 people and displaced two million others, sparking a dire humanitarian crisis in the region.
The fighting has also spilled into Nigeria's neighbours Chad, Niger and Cameroon.