Islamic State in Iraq and the Levant has declared a caliphate over territory stretching from Aleppo in Syria to Diyala in Iraq.
The offshoot of Al-Qaida has renamed itself "Islamic State" and proclaimed its leader Abu Bakr al-Baghdadi as "Caliph", the head of the state.
Abu Muhammad al-Adnani is the group's spokesperson.
"Accordingly, the terms Iraq and Levant shall be removed from all official deliberations and communications, and the official name is now the Islamic State from the date of this declaration."
Fighters from the group overran the Iraqi city of Mosul last month and took control of a number of cities across northern Iraq.
Earlier, the first batch of Chinese workers trapped in the northern Iraqi city of Samarra has landed in Guangzhou.
The Islamic State, which follows al-Qaida's hard-line ideology, has been seeking to create a medieval-style caliphate.
The announcement comes as Iraq's army presses its offensive to recapture the northern city of Tikrit.
Meanwhile, Israeli Prime Minister Benjamin Netanyahu has called for the establishment of an independent Kurdish state.
Members of the Kurdish Regional government in Iraq have welcomed the call, saying Kurdish people and Israelis are facing the same enemies.
The international community, including neighboring Turkey and the US, has opposed the break-up of Iraq.
