The Islamic State in Iraq and Greater Syria (Isis) group sought to legitimise their leadership of worldwide jihad or holy war by declaring that their leader, Abu Bakr al-Baghdadi, is the new caliph or head of state.
Abu Mohammed al-Adnani, a spokesman for the group, called for those living in the area under the group's control in both countries to swear allegiance to Al-Baghdadi.
Around 500 British-linked citizens are already thought to have travelled to the Middle East to fight with the Sunni Muslim group against its Alawite and Shia sectarian foes amid fears that more will join them.
Professor Peter Neumann, from the International Centre for the Study of Radicalisation at King's College London, said the significance of today's announcement should not be underestimated.
He said: "It's a declaration of war – not only against the West and all the countries that are currently fighting Isis but, more importantly, against Al Qa'ida. Isis now see themselves as the legitimate leaders of the movement and they expect everyone to fall in line.
"For ideological jihadists, the caliphate is the ultimate aim, and Isis – in their eyes – have come closer to realising that vision than anyone else.
"On that basis, Isis leaders believe they deserve everyone's allegiance.
"This could be the end of al Qa'ida. It depends on how al Qa'ida will respond. Unless they come out fighting, this could mark the end of (Osama) Bin Laden's vision and his legacy."
Prof Neumann said the declaration of a caliphate showed how confident Isis are after making spectacular gains in Iraq in recent weeks following a spectacular collapse by government forces.
"They haven't lost any of the momentum they gained when capturing Mosul," he said.
"On the contrary, they've held on to it, gained more territory and have seen jihadists from other groups swear allegiance to Isis.
"They must think their dream of creating the caliphate is finally coming true, and it's coming true faster and more dramatically than even they expected."
Islamic extremists have long aspired to recreate the Islamic caliphate that ruled over the Middle East for hundreds of years.