Experts said the capture of the 2,000-year-old metropolis leaves Daesh strongly placed to wrest control of more territory from Syria's government and comes days after it expanded its grip in Iraq.
US President Barack Obama played down the developments as a tactical setback and denied the Washington-led coalition was "losing" to Daesh, but French President Francois Hollande said the world must act to stop the extremists and save Palmyra.
UNESCO chief Irina Bokova called the ancient metropolis "the birthplace of human civilisation", adding: "It belongs to the whole of humanity and I think everyone today should be worried about what is happening."
In a new move consolidating their grip in Syria, Daesh on Thursday seized Al-Tanaf, the last regime-held crossing on the border with Iraq, according to the Syrian Observatory for Human Rights.
The monitor said Daesh control of Al-Tanaf, known as Al-Walid by Iraqis, means Syrian government forces have lost control over the porous border.
The Observatory said jihadists spread out Thursday through Palmyra, including at the archaeological site in the city's southwest, and killed 17 people accused of "working with the regime".
Syrian state media said loyalist troops withdrew after "a large number of Daesh militants entered the city" at the crossroads of key highways leading west to Damascus and Homs, and east to Iraq.
Daesh proclaimed Palmyra's capture online and posted video and several pictures, including of a hospital and a prison and a military airbase, but none of the ancient site.
The jihadists, notorious for demolishing archaeological treasures since declaring a "caliphate" last year straddling Iraq and Syria, fought their way into Palmyra on foot.
- 'A loss for all humanity' -
Known in Syria as "the pearl of the desert", Palmyra is home to colonnaded alleys, elaborately decorated tombs and ancient Greco-Roman ruins.
Daesh sparked international outrage this year when it blew up the ancient Assyrian city of Nimrud and smashed artefacts in the Mosul museum, both in Iraq.
Syria's antiquities director Mamoun Abdulkarim now fears a similar fate awaits Palmyra, and urged the world to "mobilise" to save it.
Daesh now controls "more than 95,000 square kilometres (38,000 square miles) in Syria, which is 50 percent of the country's territory," the Observatory said.
Fabrice Balanche, a French expert on Syria, said "Daesh now dominates central Syria, a crossroads of primary importance" that could allow it to take more territory from government forces, who are locked in a four-year civil war with opposition groups.
"Taking Palmyra opens the way to Damascus and Homs. Eventually, this axis can be threatened."
Daesh has recently threatened a number of regime strongholds, including Deir Ezzor city in the east and military airports in the north and south.
"The capture of Palmyra leaves Daesh strongly placed to make more territorial gains from (Syrian President Bashar al-) Assad, at a time when the government is heavily occupied in the north and south," said Matthew Henman, head of IHS Jane's Terrorism and Insurgency Centre.
The jihadist victory also "reinforces Daesh's position as the single opposition group that controls the most territory in Syria".
- Daesh 'controls half of Syria' -
The group now dominates the provinces of Deir Ezzor and Raqa and have a strong presence in Hasakeh, Aleppo, Homs and Hama.
It has also seized most of Syria's oil and gas fields, using the income to fund expansion of its self-styled "caliphate", which it rules under its own extreme interpretation of Islam.
"Daesh controls large and contiguous territory with a lot of freedom of movement," said Charlie Winter, researcher on jihadism at the Quilliam Foundation.
Palmyra's takeover came days after Daesh seized the Iraqi city of Ramadi, their most significant victory since mid-2014 when they conquered swathes of land, sparking a US-led air campaign to support Baghdad.
On Thursday Daesh pushed further and seized Iraqi positions east of Ramadi, the capital of Anbar province, officials said.
Obama described the loss of Iraqi territory as a tactical setback and blamed it on a lack of training and reinforcements of Iraq's own security forces.
"I don't think we're losing," he told news magazine The Atlantic, arguing the problem was down to problems in Iraq's own security forces.
"The training of Iraqi security forces, the fortifications, the command-and-control systems are not happening fast enough in Anbar, in the Sunni parts of the country."
The Pentagon said Iraqi forces retreated from Ramadi partly because they incorrectly believed a sandstorm was preventing US-led aircraft from coming to their aid.
Russia said it was prepared to supply Iraq with weapons after Iraqi Prime Minister Haider al-Abadi asked for support during a visit to Moscow.
Meanwhile, a US official said air strikes last year against Islamist extremists in Syria killed two children by mistake, the first time the American military acknowledged inflicting civilian casualties in the war.
"We regret the unintentional loss of lives," Lieutenant General James Terry, head of the US-led air campaign against Daesh, said in a statement.