After accepting his award, Loach gave a passionate speech about the state of the economy and political systems and the prospect of a British exit from the European Union.
"To come out of Europe, only to go to even further right, in our own country would be bad. So it's a tactical question. I would stay in, but we really have to change and we have to link up with all those who really want to change it, from what is left from Syriza in Greece to Podemos, to the other left movements but my God ! We need change. We can't stand the way it is."
The award for the 79-year-old was announced by actor Mel Gibson.
"I, Daniel Blake" is a warmly realistic drama about a middle-aged widower in northern England who can neither work nor get government benefits after a heart attack.
Jury president George Miller described the jury's selection as "rigorous and happy."
This is Loach's second time in winning the Palme d'Or, following his first win by "The Wind That Shakes The Barley" in 2006.
Canadian director Xavier Dolan won the Grand Prize of the Festival for the star-studded drama "It's Only the end of the world."
The story centers on a young man who returns home to tell his family he's dying.
This is Dolan's fifth film at Cannes, and the freakishly successful-27-year old describes the winning film as his best production.
"I'm very happy to be here with people that I love and with whom we made a film that I'm very proud of, and that, for me, is my best film yet. One should always think like that because how else can you progress and move forward if you don't believe in the things you love, in which you invest your time and your love."
The jury prize was given to Andrea Arnold for "American Honey," which features a teen runaway who takes up with a traveling magazine sales crew.
Two filmmakers were given the honor of best director: Cristian Mungiu for "Graduation" and Olivier Assayas for "Personal Shopper."
Jaclyn Jose, the star of Filipino auteur Brillante Mendoza's "Ma' Rosa," took home best actress honors.
The best actor prize was awarded to Shahab Hosseini, the star of Asghar Farhadi's "The Salesman."
He previously starred in "A Separation," also directed by Farhadi.
Farhadi's "The Salesman" also won the award for best screenplay.
The Camera d'Or, which honors the best first feature film, was awarded to "Divines," a movie by Houda Benyamina.
"Timecode," directed by Juanjo Gimenez, won the short film award, while "The Girl Who Danced With the Devil," helmed by Joao Paulo Miranda Maria, received a special distinction.
The honorary Palme d'Or was given to Jean-Pierre Leaud, the French actor who starred in Francois Truffaut's series of films that began with 1959's "The 400 Blows."
Here is the complete list of the winners of the 69th Cannes Film Festival's main competition on Sunday:
The Palme d'Or Award: I, Daniel Blake, directed by Ken Loach
The Grand Prize Award: Juste La Fin Du Monde, directed by Xavier Dolan
The Best Director Award: Olivier Assayas for Personal Shopper, and Cristian Mungiu for Baccalaureat
The Best Screenplay Award: Asghar Farhadi for Forushande
The Best Actress Award: Jaclyn Jose for Ma'Rosa
The Best Actor Award: Shahab Hosseini for Forushande
The Jury Prize Award: Andrea Arnold for American Honey
The Camera d'Or Award: Houda Benyamina for Divines
The Palme d'Or for Short Film Award: Juanjo Gimenez for Timecode
The Honorary Palme d'Or: Jean-Pierre Leaud
Source: CRI