The order follows widespread criticism of local authorities' use of military gear in Ferguson, Missouri after the fatal shooting of an unarmed black teenager by a white police officer.
Police there met protests with a massive show force - body armor-clad officers perched on armored trucks toting stun grenades and assault rifles - thanks to their access to such US military hardware.
Obama "has directed a review of federal programs and funding that enable state and local law enforcement to purchase military equipment."
The investigation will be headed by "White House staff including the Domestic Policy Council, the National Security Council, the Office of Management and Budget," the official added yesterday.
Michael Brown's funeral, set to take place tomorrow, is likely to be a focal point for more demonstrations by angry protesters demanding that Darren Wilson, the policeman who shot the teenager at least six times, face justice.
The demonstrations, at times violent, have stretched on for two weeks.