Walikale is the farthest west the rebels have reached in a advance that had already overrun eastern DR Congo's two largest cities since January.
The town of 15,000 people fell after fighting on Wednesday between the rebels and the army and allied militias, an army spokesperson and local residents said.
The conflict, rooted in the fallout from Rwanda's 1994 genocide and competition for mineral riches, is eastern DR Congo's worst since a 1998-2003 war that drew in multiple neighbouring countries and resulted in millions of deaths.
With troops from DR Congo, Rwanda and Burundi having all participated in fighting this year, a conflict that has simmered for years is evolving into a wider regional war, experts say.
Walikale is in an area rich in minerals including tin and lies along a road that links four eastern DR Congo provinces - North Kivu, South Kivu, Tshopo and Maniema.
Its capture puts the rebels within 400km of Kisangani, which is the country's fourth-biggest city and has a bustling port at the Congo River's farthest navigable point upstream of the capital Kinshasa.
Addressing Walikale residents who had gathered in town on Thursday, an M23 officer repeated an earlier vow by the rebels to march 1500km to Kinshasa.
"We are going to leave a small group of our soldiers to provide you security," he said in a video seen by Reuters.
"As for us, we are going to continue ... to join our soldiers who are also en route and continue all the way to Kinshasa."
DR Congolese President Felix Tshisekedi and his Rwandan counterpart Paul Kagame had called on Tuesday for an immediate ceasefire after a surprise meeting in Qatar's capital Doha, their first direct talks this year.
The leader of the M23 alliance dismissed the appeal and said his forces were not fighting at Rwanda's behest.
"We are Congolese who are fighting for a cause," Corneille Nangaa, head of the Congo River Alliance (AFC), told Reuters in an interview in eastern DR Congo's biggest city Goma.
"What happened in Doha, as long as we don't know the details, and as long as it doesn't solve our problems, we'll say it doesn't concern us."
The United Nations says Rwanda has been providing arms and troops to the ethnic Tutsi-led M23.
Rwanda has denied backing M23 and says its military has been acting in self-defence against DR Congo's army and a militia founded by perpetrators of the 1994 genocide.
DR Congo and M23 had been expected to have their first direct talks on Tuesday in Angola after Tshisekedi's government reversed its longstanding refusal to speak to the rebels.
But M23 pulled out on Monday, blaming European Union sanctions on some of its leaders and Rwandan officials.
Analysts say the move showed how emboldened the rebels felt as well as confusion and mistrust around competing peace initiatives by different foreign governments.
A statement on Thursday by Angola's foreign ministry expressed "astonishment" about the talks in Qatar, saying: "All efforts to resolve conflicts are welcome but African problems should have an African solution."
Nangaa reiterated demands for direct talks with DR Congo, saying it was the only way to resolve the conflict.
M23 has called for an end to what it says is the persecution of Tutsis in DR Congo and improvements to national governance.
"We are keen on any peaceful solution," he said.
with AP
