Pakistani climate minister Sherry Rehman said COP27 "responded to the voices of the vulnerable, the damaged and the lost of the whole world".
"We have struggled for 30 years on this path, and today in Sharm el-Sheikh this journey has achieved its first positive milestone," she said.
Tired delegates applauded when the loss and damage fund was adopted as the sun came up Sunday following days of marathon negotiations over the proposal.
But jubilation over that achievement was countered by stern warnings.
UN chief Antonio Guterres said the UN climate talks had "taken an important step towards justice" with the loss and damage fund, but fallen short in pushing for the urgent carbon-cutting needed to tackle global warming.
"Our planet is still in the emergency room. We need to drastically reduce emissions now and this is an issue this COP did not address," Guterres said.
A final COP27 statement covering the broad array of the world's efforts to grapple with a warming planet held the line on the aspirational goal of limiting global warming to 1.5 degrees Celsius from pre-industrial levels.
It also included language on renewable energy for the first time, while reiterating previous calls to accelerate "efforts towards the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies".
But that failed to go much further than a similar decision from last year's meeting in Glasgow on key issues around cutting planet-heating pollution.
In a scolding intervention as the talks went into Sunday morning, European Commission Vice President Frans Timmermans said the EU was "disappointed" with a lack of ambition on reducing emissions.
"What we have in front of us is not enough of a step forward for people and planet," he said.
"It doesn't bring enough added efforts from major emitters to increase and accelerate their emission cuts."
- 'Historic' deal -
The deal on loss and damage -- which barely made it onto the negotiation agenda -- gathered critical momentum during the talks.
Developing nations relentlessly pushed for the fund during the summit, finally succeeding in getting the backing of wealthy polluters long fearful of open-ended liability.
A statement from the Alliance of Small Island States, comprised of islands whose very existence is threatened by sea level rise, said loss and damage deal was a "historic" deal 30 years in the making.
"The agreements made at COP27 are a win for our entire world," said Molwyn Joseph, of Antigua and Barbuda and chair of AOSIS.
"We have shown those who have felt neglected that we hear you, we see you, and we are giving you the respect and care you deserve."
With around 1.2C of warming so far, the world has seen a cascade of climate-driven extremes in recent months, shining a spotlight on the plight of developing countries faced with escalating disasters, as well as an energy and food price crisis and ballooning debt.
The World Bank estimated that devastating floods in Pakistan this year caused $30 billion in damage and economic loss.
The fund will be geared towards developing nations "that are particularly vulnerable to the adverse effects of climate change" -- language that had been requested by the EU.
- 'On the brink' -
The Europeans had also wanted to broaden the funder base to cough up cash -- code for China and other better-off emerging countries.
The final loss and damage text left many of the thornier questions to be dealt with by a transitional committee, which will report to next year's climate meeting in Dubai to get the funding operational.
On Saturday morning, with the talks already in overtime, the European Union said it was prepared to have "no result" rather than a bad one over concerns around ambition on emissions cuts.
Scientists say limiting warming to 1.5C is a far safer guardrail against catastrophic climate impacts, with the world currently far off track and heading for around 2.5C under current commitments and plans.
"The historic outcome on loss and damage at COP27 shows international cooperation is possible," said Mary Robinson, former president of Ireland and Chair of The Elders.
"Equally, the renewed commitment on the 1.5C global warming limit was a source of relief. However, none of this changes the fact that the world remains on the brink of climate catastrophe."