The 193-member assembly voted 138-9 with 41 abstentions for the resolution which enables the Palestinians to join UN agencies and sign international treaties.
The resolution upgrading the Palestinians' status (on par with the Vatican) was an embarassing diplomatic defeat to the US. Upon the announcement, a Palestinian flag was quickly unfurled on the floor of the General Assembly, behind their delegation.
Real independence, however, remains an elusive dream until the Palestinians negotiate a peace deal with the Israelis, who warned that the General Assembly action will only delay a lasting solution.
Israel still controls the West Bank, east Jerusalem, and access to Gaza, and it accused the Palestinians of bypassing negotiations with the campaign to upgrade their UN status.
US secretary of state Hillary Clinton had earlier criticised the bid by saying Abbas should renew negotiation with Tel Aviv first on how a peaceful solution can be worked out.
However, the US-brokered peace deal has remained as US-Israel 'diplomacy game' to deny the Palestinians of their sovereign rights.
Israel was worried if the new status would provide the legal basis for the Palestinians to charge the regime at the International Court of Justice for the crime it committed on the Palestinians.