The upgrade will help the Palestinian Authority and President Mahmoud Abbas challenge Israel in international judicial forums, but its effect on achieving a two-state solution to the Israeli-Palestinian conflict was not immediately clear, The New York Times said.
The vote came despite intense lobbying by the United States and Israel to reject upgraded status for Palestine.
During a speech prior to the vote, Abbas called on the General Assembly to "issue a birth certificate of the reality of the state of Palestine."
He accused Israel of short-changing the peace process and said Palestinians instead "have witnessed, and continue to witness, an unprecedented intensification of military assaults, the blockade, settlement activities and ethnic cleansing, particularly in occupied East Jerusalem, and mass arrests, attacks by settlers and other practices by which this Israeli occupation is becoming synonymous with an apartheid system of colonial occupation, which institutionalizes the plague of racism and entrenches hatred and incitement."
The office of Israeli Prime Minister Binyamin Netanyahu said in a statement Abbas' speech was "defamatory and venomous" and was "full of mendacious propaganda."
Israeli U.N. Ambassador Ron Prosor addressed the body, saying "the Palestinians are turning their back on peace."
"Don't let history record that today the U.N. helped them along on their march of folly," Prosor said.
Netanyahu said before the vote the Palestinians' move to upgrade their status will distance them from statehood.
Speaking in Jerusalem Thursday, Netanyahu said, "Israel's hand is always extended in peace, but a Palestinian state will not be established without recognition of the state of Israel as the state of the Jewish people, without an end-of-conflict declaration and without true security arrangements that will protect Israel and its citizens," The Jerusalem Post said.
"It does not matter how many will vote against us, there is no force in the world that will cause me to compromise on Israeli security, and there is no force in the world able to sever the thousands year connection between the people of Israel and the Land of Israel," Netanyahu said.
U.S. State Department spokeswoman Victoria Nuland said Wednesday Washington had taken one last try at getting Abbas to reconsider.
U.S. Secretary of State Hillary Clinton said the General Assembly vote to give the Palestinian territories of the West Bank and Gaza Strip the same rank as the Vatican won't produce "a lasting solution" in the Middle East.
"The path to a two-state solution that fulfills the aspirations of the Palestinian people is through Jerusalem and Ramallah, not New York," she said.
Clinton called for direct negotiations between the two sides.
The vote had been expected to be supported by at least 11 of the European Union's 27 members -- Austria, Cyprus, Denmark, Finland, France, Greece, Ireland, Luxembourg, Malta, Portugal and Spain.
The General Assembly is the only U.N. body in which all members have equal representation.
The vote took place on the 65th anniversary of the General Assembly's 1947 approval of a plan to partition British-administered Palestine into independent Arab and Jewish states, with a special international regime for Jerusalem.
The Jewish leadership embraced the decision at the time, The Wall Street Journal said, but Arab governments rejected it, leading to an Arab-Israeli war that left Palestinians without a state.
The Palestine Liberation Organization endorsed the two-state solution and accepted the partition resolution in 1988, contingent on terms such as making East Jerusalem the Palestinian capital and giving Palestinians a "right of return" to land they occupied before 1948.
Thursday's U.N. resolution gives Palestinians an option of asserting legal rights over territorial waters and airspace in U.N. bodies, as well as bringing war-crimes charges against Israel in the International Criminal Court.
Not all Palestinians support the move.
The vote won't change anything on the ground, Farouk Kaddoumi, head of the Palestinian Liberation Organization's political department, said from Tunisia.
"The armed struggle against Israel has proved more effective than peace negotiations," the Post quoted him saying.
"This will not benefit the Palestinians because it won't change the reality of occupation and Judaization that exists on the ground," he said. "What we really need is change on the ground. ... Resistance has a better impact on Israel. Therefore, there is no need for negotiations."
Hanan Ashrawi, member of the PLO Executive Committee in Ramallah, said the statehood bid will pave the way for freedom and independence for the Palestinian people. The U.N. decision means "our lands are not disputed territories, but Palestinian lands," the Post quoted her saying this week.
Israel described the vote's passage as merely technical and procedural, creating a symbolic Palestinian victory devoid of diplomatic significance.
"It may give them some procedural advantages, such as access within the United Nations system to some things, but that's it," Israeli Foreign Ministry spokesman Yigal Palmor told The New York Times.
"It does not change the status of the territory."
Former Israeli Prime Minister Ehud Olmert, who engaged more than any other Israeli in direct negotiations with Abbas, told The Daily Beast he saw the Palestinian request as "congruent with the basic concept of the two-state solution."
"Therefore, I see no reason to oppose it," he said. "Once the United Nations will lay the foundation for this idea, we in Israel will have to engage in a serious process of negotiations, in order to agree on specific borders based on the 1967 lines and resolve the other issues.
"It is time to give a hand to, and encourage, the moderate forces amongst the Palestinians. Abu-Mazen [an Abbas alias] and [Palestinian Prime Minister] Salam Fayyad need our help. It's time to give it."
Abbas' Palestinian Authority planned celebrations in the central West Bank city of Ramallah -- the authority's administrative capital, 6 miles north of Jerusalem -- after the vote.
But the U.N. decision wasn't expected to change Palestinian life any time soon.
"This evening there will be a celebration in Ramallah but on Friday morning there will be no change on the ground," a senior Israeli official said.
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