The president says his plan will make the system "more fair, more efficient and more just."
"Let's be clear, this is not amnesty, this is not immunity, this is not a path to citizenship, this is not a permanent fix," Mr. Obama said from the White House Rose Garden.
As many as 800,000 immigrants may be affected by the decision, which takes effect immediately. The move comes in an election year in which the Hispanic vote could be critical in swing states. While Mr. Obama enjoys support from a majority of Hispanic voters, his support has been tempered by the slow economic recovery and his inability to win congressional support for a broad overhaul of immigration laws.
Officials say the new plan will be implemented on a case-by-case basis. Some worry that would still allow deportations.
During the president's speech, a man identified as Neil Munro of the Daily Caller interrupted Mr. Obama in the middle of his remarks to repeatedly ask, "Why do you favor foreigners over American workers?" The president responded, "It's not time for questions, sir, not while I'm speaking."
At the end of his remarks, the Mr. Obama said, "The answer to your question, sir - and the next time I prefer you let me finish my statements before you ask that question - is this is the right thing to do for the American people."
The administration said illegal immigrants will not be deported and can qualify for work permits only if they meet these criteria:
- They arrived in the U.S. before the age of 16
- They are younger than 30
- They have been in the country for at least five continuous years
- They have no criminal history
- They graduated from a U.S. high school, or earned a GED, or served in the military
A group of immigrant students staged a sit-in in downtown L.A. to celebrate the policy change and to demand more changes. They said they were fighting for the future of other immigrants.
"We've been working so hard for this, and we didn't think it was going to happen, and now that it has, it's really emotional for everyone," said Esperanza Arizon of South Los Angeles. "It's a big victory, but we still have to keep fighting for the rest of the undocumented community."
Arizon said she graduated from Cal State Los Angeles, but her job is on hold because of her immigration status.
In Venice, a small group of students blocked the entrance to the Obama for America Headquarters office. They said they were skeptical because the policy change comes just a few months before the election.
"This is totally an election stunt because there's no solid policy. Again, it's up to those ICE officers," said student Jonathan Perez.
The policy closely tracks a proposal being drafted by Republican Sen. Marco Rubio of Florida, a potential vice presidential running mate for Republican presidential candidate Mitt Romney, as an alternative to the DREAM Act, formally the Development, Relief and Education of Alien Minors Act.
The change swiftly drew an outcry from Republicans accusing Mr. Obama of circumventing Congress in an effort to boost his political standing.
"Americans should be outraged that President Obama is planning to usurp the constitutional authority of the United States Congress and grant amnesty by edict to one million illegal aliens," said Iowa Republican Congressman Steve King in a statement. "The American people have rejected amnesty because it will erode the rule of law. In much the same way, I believe the American people will reject President Obama."
Republican presidential nominee Mitt Romney says today's executive order is not a long-term answer. Romney did not answer when asked if he would reverse the president's decision.
"I think the action that the president took today makes it more difficult to reach that long-term solution because an executive order is, of course, just a short-term matter. It can be reversed by subsequent presidents," Romney said.
The Associated Press contributed to this report.