The move poses a direct challenge to the central leadership of al Qaeda, which has disowned it, and to conservative Gulf Arab rulers who already view the group as a security threat.
The group, previously known as the Islamic State in Iraq and the Levant (ISIL) and also known as ISIS, has renamed itself "Islamic State" and proclaimed its leader Abu Bakr al Baghdadi as "Caliph" - the head of the state, the statement said.
"He is the imam and khalifah (Caliph) for the Muslims everywhere," the group's spokesperson Abu Muhammad al Adnani said in the statement, which was translated into several languages and read out in an Arabic audio speech.
"Accordingly, the "Iraq and Sham" (Levant) in the name of the Islamic State is henceforth removed from all official deliberations and communications, and the official name is the Islamic State from the date of this declaration," he said.
The militant group follows al Qaeda's hard-line ideology but draws its strength from foreign fighters battle-hardened from Iraq.
It seeks to re-create a medieval-style caliphate erasing borders from the Mediterranean to the Gulf.
"It is incumbent upon all Muslims to pledge allegiance to (him) and support him...The legality of all emirates, groups, states, and organisations, becomes null by the expansion of the khalifah’s authority and arrival of its troops to their areas," the statement said.
Fighters from the group overran the Iraqi city of Mosul last month in a lightning action and have advanced towards Baghdad. In Syria they have captured territory in the north and east, along the frontier with Iraq.
In Syria, the group has alienated many civilians and opposition activists by imposing harsh rulings against dissent, even beheading and crucifying opponents, in areas it controls. In Iraq it has been accused by rights groups of carrying out mass executions in the northern city of Tikrit and in Lebanon the group claimed a suicide attack at a hotel on Wednesday.
"Whatever judgments are made in terms of its legitimacy, (the) announcement that it has restored the Caliphate is likely the most significant development in international struggle since 9/11," said Charles Lister, Visiting Fellow at the Brookings Doha Center.
"The impact of this announcement will be global as al Qaeda affiliates and independent militant groups must now definitively choose to support and join the Islamic State or to oppose it."
Gulf reaction
Gulf Arab states such as Saudi Arabia are likely to be alarmed by the open declaration of a caliphate that challenges their power and the dynastic system on which it rests. Saudi Arabia fought al Qaeda militants for several years, finally crushing their campaign in 2006.
"Gulf rulers will view the statement as evidence that the organisation poses a grave external threat to their stability," said Kristian Ulrichsen, Gulf expert at the US-based Baker Institute.
They will could also use it to defend themselves against any Western accusations they have been providing material and logistical support to the group by arguing that they stand in the front line against it, he added.
But some dismissed the idea that this would have a significant effect on the Gulf region.
"It might sound good to some circles who always have this dream of an Islamic state of a sort, but we all know that this Baghdadi, ISIL, they are not the kind of entities that could bring back the Islamic state," said Emirati political scientist Abdulkhaleq Abdullah.
"This guy (Baghdadi) doesn't have one iota of the credibility and credentials that (Osama) bin Laden had," he said, referring to al Qaeda's late leader.
The group crucified eight rival rebel fighters in Syria, a monitoring group said on Sunday, and it has frequently fought against al Qaeda's Syrian wing and other armed militant groups.
Such infighting has killed around 7,000 people in the country so far this year and complicated the three-year uprising against Syrian President Bashar al Assad.
COMMENTS (2)
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In a way I am pleased they rushed to make the announcement of Islamic state.
Now as a state function, people expect the ISIS to provide, food, water, energy and safety.
In an unrecognized state which does not have the apparatus of finance, currency, credit, commerce, defense and diplomacy, people will soon dump ISIS and all the similar movements.
Even Taliban Afghanistan was recognized by two states and we all know how Afghanistan economy was.
I couldn't stop laughing at this...seriously? In a way I'm happy because it will satisfy the holy keyboard warriors and we're more than happy for them to move there now that a 'caliphate' has been restored. I think they are forgetting that they also need emirate states to join them (not going to happen), Turkey (definitely not), Iran (out of the question), Afghanistan (I doubt it) and Pakistan/Bangladesh/Indonesia...seriously..LOL an Islamic caliphate isn't just Iraq, Syria, and Saudi Arabia you know