A separate IS attack on the north-eastern city of Hassakeh has displaced 60,000 people, the UN says.
Kobane became a symbol of Kurdish resistance in January after an IS siege lasting several months was repelled.
IS launched an apparent two-pronged offensive on Thursday after Kurdish fighters from the Popular Protection Units (YPG) cut off one of the militants' major supply routes near Raqqa.
Raqqa is the de facto capital of the IS "caliphate", whose creation IS announced a year ago after it captured large swathes of northern and western Iraq and parts of Syria.
'Women and children'
"According to medical sources and Kobane residents, 120 civilians were executed by IS in their homes or killed by the group's rockets or snipers," said Rami Abdel Rahman, who heads the UK-based Observatory.He said women and children were among the bodies found inside houses and on the streets of the town, which is close to the border with Turkey.
He described it as one of the biggest massacres by the group in the country since its offensive began last summer.
The militants took the town by surprise when they launched their attack on Thursday, five months after IS was removed by Kurdish fighters backed by US-led coalition strikes.
The attack at dawn on Thursday began when militants detonated a car bomb, followed by two more bombings.
Women and children were said to be among the civilians killed in the latest attack
Reports said some of the
militants may have hidden themselves among returning refugees and
disguised themselves by wearing Kurdish militia uniforms. In a nearby village, IS reportedly shot dead at least 20 civilians, including women and children.
Activists say clashes between some IS militants and the Kurdish YPG forces are continuing in the town.
Separately on Friday, the UN said an estimated 50,000 people had been displaced within the city of Hassakeh after another IS offensive there. Another 10,000 have fled northwards towards a town near the Turkish border, it added.
Hassakeh, about 270km (180 miles) east of Kobane, has been under the control of both government forces and Kurdish fighters, and IS militants have been trying to capture it for months.
Overall, in four years of armed conflict in Syria, more than 200,000 people have lost their lives and more than 11 million others have been forced from their homes.
Women and children were said to be among the civilians killed in the latest attack
Reports said some of the militants may have hidden themselves among returning refugees and disguised themselves by wearing Kurdish militia uniforms.
In a nearby village, IS reportedly shot dead at least 20 civilians, including women and children.
Activists say clashes between some IS militants and the Kurdish YPG forces are continuing in the town.
Separately on Friday, the UN said an estimated 50,000 people had been displaced within the city of Hassakeh after another IS offensive there. Another 10,000 have fled northwards towards a town near the Turkish border, it added.
Hassakeh, about 270km (180 miles) east of Kobane, has been under the control of both government forces and Kurdish fighters, and IS militants have been trying to capture it for months.
Overall, in four years of armed conflict in Syria, more than 200,000 people have lost their lives and more than 11 million others have been forced from their homes.
 militants have killed more than 120 civilians since launching a fresh attack on the Syrian border town of Kobane, act...){kind=link}