Emergence of coherent structures and patterns at the nonlinear stage of modulation instability of a uniform state is an inherent feature of many biological, physical and engineering systems. There are several well-studied classical modulation instabilities, such as Benjamin-Feir, Turing and Faraday instability, which play a critical role in the self-organization of energy and matter in non-equilibrium physical, chemical and biological systems. Here we experimentally demonstrate the dissipative Faraday instability induced by spatially periodic zig-zag modulation of a dissipative parameter of the system - spectrally dependent losses - achieving generation of temporal patterns and high-harmonic mode-locking in a fibre laser. We demonstrate features of this instability that distinguish it from both the Benjamin-Feir and the purely dispersive Faraday instability. Our results open the possibilities for new designs of mode-locked lasers and can be extended to other fields of physics and engineering.