question: BACKGROUND: There is no general agreement on a standard form of functional classification in older adults and is mainly assessed by Activities of Daily Living (ADL) and/or Instrument Activity of Daily Living. A refined classification based on evaluation the limitations of intrinsic capacity, environment and social interaction, could provide a basis to predict the future disability and identify individuals with increased risk of adverse outcomes. METHODS: A new functional classification among older adults aged 60 and over was conducted by latent class analysis and compared with the traditional classifications, based on the China Health and Retirement Longitudinal Study. To further investigate the scientific validity of this new classification, associations with 7-year mortality and ADLs impairments among categories were tested by using Survival curves and Cox proportional hazard models. This was followed by the confirmatory analysis related to the prospective data. Competing risk analysis was also performed to analysis the sensitivity to further support our conclusions. RESULTS: Five categories were identified among 5,992 older adults which gave the best fitting, yielding a significant Bootstrap Likelihood Ratio Test (p < 0.001) and Lo-Mendell-Rubin adjusted likelihood ratio test (p < 0.001), with an entropy over 0.80. The presence of five categories: “health” (34.0%), “sub-disorder status” (36.6%), “acute diseases” (10.3%), “somatic functional disorder” (7.7%), and “viability disorder” (11.4%), which matched well with the functional independence rates by the international classifications. Among them, those in “sub-disorder status” were considered as an intermediate status between disability and health. The findings also revealed that those who were in “acute disease”, “somatic functional disorders”, “health” and “sub-disorder status” had a significant lower risk of mortality and ADLs limitations than “viability disorder”. And the risks gradually increased towards the less functionally independent end of the classification. However, the distribution of characteristics among five categories were in a synchronous change, indicating a stable classification. CONCLUSIONS: A new classification representing the functional heterogeneity of older adults could effectively stratify the risk of mortality and ADLs limitations. Identifying the clusters of functional decline might be useful in predicting subsequent ageing trends, designing personalized intervention, and delaying the progression of disability and preventing its occurrence. SUPPLEMENTARY INFORMATION: The online version contains supplementary material available at 10.1186/s12877-022-03081-9.