Seen as the first step to win back trust of its allies, Obama defended the controversial spying programme as necessary to safeguard the security of America and its allies, including Germany.
"Our intelligence agencies, like German intelligence agencies, and every intelligence agency out there, will continue to be interested in the government intentions of countries around the world. That's not going to change," Obama said.
Seeking damage control in the wake of global public outrage over the widespread snooping revealed by whistleblower Edward Snowden, Obama announced on Friday restrictions on NSA's intelligence gathering capabilities to put an end to the surveillance of "foreign leaders of friendly nations" but ruled out scrapping the controversial programme altogether.
In that major policy speech, Obama had asked to balance between civil liberties of Americans and people across the globe and meeting the US security and intelligence needs.
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The US President, however said he would not allow the surveillance to harm his relationship of "friendship and trust" with Merkel.
"I don't need and I don't want to harm that relationship by surveillance mechanism that has somehow impeded the kind of communication and trust we have," Obama said.
"As long as I am the president of the US, the chancellor and Germany will not have to worry about this," Obama said.
However, Obama in a presidential decree has ordered that telephone and Internet surveillance will be carried out abroad only if US security threats are involved and to extend US rules on privacy protection to foreign citizens.
He had also ordered restrictions on the use of the metadata - information on the telephone numbers, time and duration of calls-- collected by the intelligence services.