Officials estimate that there are about 3,000 to 5,000 ISIS fighters still inside Mosul - which was declared a "caliphate" by al-Baghdadi in 2014.
An undated audio recording with a voice claiming to be that of Baghdadi's was released early Thursday by the ISIS-affiliated media agency Al-Furqan.
A coalition offensive on Mosul began on October 17 and is expected to be a long and hard battle to unseat the extremist group from their Iraqi stronghold.
"O you who seek martyrdom!"
Mosul still has a population of 1.5 million people, much more than any of the other cities captured by Islamic State two years ago in Iraq and neighbouring Syria.
The release and timing of the recording, days after Iraqi troops pushed into the city limits of Mosul, liberating some of its suburbs and reinstating a government presence to those areas for the first time in more than two years, seemed meant to buoy Baghdadi's fighters. "Start your actions! Turn the night of the disbelievers into day", he says, according to a translation provided by the SITE Intelligence Group, a US organization that monitors militant activity online which reported the al-Baghdadi recording first. "Totally decimate their territories, and make their blood flow like rivers!"
Iraqi special forces say they have fired a rocket to destroy an explosives-laden vehicle that sped out of a more central neighborhood of the Islamic State-held city of Mosul. Both sides opened up with small arms and mortar fire after an artillery barrage by the special forces, ahead of their advance.
A parallel operation to retake Raqqa, Islamic State's de-facto capital in Syria, is also expected to be launched in the coming weeks by the USA -led military coalition.
Troops in Mosul are stationed at the eastern city limits, and have yet to enter the densely packed urban areas less than a kilometer (mile) away.
Earlier this week, an Iraqi general said that Iraq's Special Forces had entered the outskirts of Mosul, taking the state television building and advancing despite fierce resistance by Islamic State group fighters who hold the city.
Baghadi told his followers to launch "attack after attack" in Saudi Arabia, targeting security forces, government officials, members of the ruling Al Saud family and media outlets, for "siding with the infidel nations in the war on Islam and the Sunna [Sunni Muslims] in Iraq and Syria". The message apparently was an attempt to harness the feelings of Sunni disenfranchisement that preceded the 2014 IS takeover of Mosul, a largely Sunni city in Shiite-majority Iraq.
The bloodthirsty ISIS leader also calls on suicide fighters to attack "enemies of God" and "destroy the cities of unbelievers" - adding that he was "confident of victory" in Mosul, the terror group's last major Iraqi stronghold, despite reports saying his fighters were completely surrounded.
In the unverified recording shared by followers, Baghdadi told ISIS fighters to "unleash the fire of their anger" on Turkish soldiers who are waging war against the group in Syria and urged them to take the battle to Turkey.
The battle that started on October 17 with air and ground support from a US -led coalition is shaping up as the largest in Iraq since the USA -led invasion of 2003.
On Wednesday, residents in the easternmost district of Gogjali cautiously welcomed liberating Iraqi troops, with some raising white flags and flashing the "V" for victory sign.