"Today our immigration system is broken and everybody knows it," Obama said. "It's been this way for decades and for decades we haven't done much about it."
He rejected accusations by conservatives that he is offering a free pass to undocumented immigrants and warned in a prime-time address that he would bolster border security and make it harder for unauthorised outsiders to get into the country.
Obama described his unilateral action as a "common-sense, middle-ground approach" that will allow otherwise law-abiding immigrants to "come out of the shadows and get right with the law".
He said a mass deportation of the nation's more than 11 million undocumented immigrants "would be both impossible and contrary to our character".
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Obama's plan would let parents of US citizens and legal permanent residents remain in the country temporarily, without the threat of deportation. The measure would apply to those who have been in the US for last five years.
The move provides portable work authorisation for high-skilled workers awaiting LPR status and their spouses.
Under the current system, employees with approved LPR applications often wait many years for their visa to become available, a White House fact sheet said.
"We'll build on our progress at the border with additional resources for our law enforcement personnel so that they can stem the flow of illegal crossings, and speed the return of those who do cross over," Obama said.
"We'll take steps to deal responsibly with the millions of undocumented immigrants who already live in our country," he said.