Former Guantanamo Bay prisoner Mullah Abdul Rauf is thought to be the driving force behind the establishment of a base in the south of the country, according to Afghan military and provincial officials.
His recruits have reportedly been offering potential Taliban recruits up to $500 (£330) per month to fight for IS.
Tribal leaders have said that he is operating out of the Zamin Dawar area of north Helmand, which is thought to be is hometown.
He was understood to be a commander between 1996 and 2001 during the Taliban’s rule of Afghanistan before being arrested in the US-led invasion of the country in 2001 and detained at Guantanamo.
There have also been reports of a gun battls between Taliban and IS fighters.
IS, which controls areas of land in Iraq and Syria, has made inroads into south Asia, an area dominated by Afghan and Pakistani insurgencies against respective governments.
The Pakistani Taliban has previously pledged to send fighters to support IS but this is the first time they are thought to have made gains in Afghanistan.
IS and al-Qaeda have enjoyed a thorny relationship, with IS criticising al-Qaeda for being out of touch.