In a move that infuriated his Republican critics and drew unspecified pledges to counter it, Obama said nearly all undocumented people living in the country for more than five years and who have a child who is a US citizen or legal permanent resident can apply for a three-year work authorisation.
The president also broadened the program he launched in 2012 that provides temporary residency to young undocumented immigrants who arrived in the United States before the age of 16.
"There are actions I have the legal authority to take as president -- the same kinds of actions taken by Democratic and Republican presidents before me -- that will help make our immigration system more fair and more just," Obama said in a 15-minute speech broadcast from the White House.
The order will affect about 44% of the 11.3 million people -- mostly from Mexico and Central America -- living in the United States illegally and doing menial jobs that most Americans snub.
"Are we a nation that tolerates the hypocrisy of a system where workers who pick our fruit and make our beds never have a chance to get right with the law?" he asked.
But he quickly stressed that the sweeping order, the most comprehensive immigration step in years, "does not grant citizenship, or the right to stay here permanently, or offer the same benefits that citizens receive.
"Only Congress can do that," he added. "All we're saying is we're not going to deport you."
Obama's executive order shifts US policy from a dragnet approach to all illegal immigrants to a focus on deporting convicted felons and those who pose a danger to society.
People living and working illegally in the country and who meet the criteria can apply for deferred deportation from next spring, the White House said.
For much of this year, Republicans have warned that unilateral action on immigration would be an illegal and unconstitutional amnesty of millions of undocumented people.
But Obama shot back, saying he was taking needed action while congressional Republicans dithered.
"Mass amnesty would be unfair. Mass deportation would be both impossible and contrary to our character," Obama said.
The president invoked the centuries-old history of America as a compassionate nation of immigrants and described his plan as "commonsense" accountability.
But in his words lay a warning, and a message to lawmakers that he would stand tough on immigration law.
"If you're a criminal, you'll be deported. If you plan to enter the US illegally, your chances of getting caught and sent back just went up," he said.
Since 1986, when then-Republican president Ronald Reagan granted a sweeping amnesty, all attempts at major reform of the country's immigration system have failed.
Faced with congressional stalemate, Obama - who made immigration a top priority on taking office in 2009 - has decided, with two years left in the White House, to take the matter into his own hands.
Under the new rules, those applying for deferred action must have a clean criminal record, pass a background check, and pay taxes.
The plan expands the program allowing temporary residency cards for minors to include those of all ages, provided they arrived in country prior to January 1, 2010 and were 16 or younger when they entered.
And it also eases legal immigration rules for high-tech workers and students in "STEM" fields - science, technology, engineering and mathematics.
A new immigration law did pass the then-Democratically controlled Senate last year, but the Republican House of Representatives blocked it and failed to agree on its own alternative proposal.
Republicans, who will control both House and Senate in January after a huge win in this month's midterm elections, say Obama is going too far.
Incoming Republican Senate Majority Leader Mitch McConnell warned Thursday that the new Congress will exact political retribution.
"If President Obama acts in defiance of the people and imposes his will on the country, Congress will act," he said.
Obama will travel to Las Vegas, Nevada on Friday to further explain his immigration orders. The state is home to many undocumented Latinos.
The Republican National Committee derided the president's action as an outright amnesty ordered unconstitutionally by a "one-man legislature."
It urged party supporters who oppose the reform to contribute money to the party to help fight the order.
The political firestorm unleashed by Obama does not bode well for relations between Congress and the White House in the coming months.
Republicans cannot halt a presidential decree, but they can make Obama's last two years extremely difficult - by blocking his choices for ambassadorial and administration posts, as well as judgeships.
But with the 2016 presidential election on the horizon, the debate within the Republican Party on immigration will be lively, as it can ill afford to offend Hispanic voters, 70% of whom voted for Obama in 2012.
COMMENTS (1)
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Selective enforcement of the law is bad policy - period. You don't like the law then change it - but executive should never put himself above the law by refusing to enforce it.