The US president confirmed the anticipated announcement after a 60-day review he commissioned recommended a 'new missile defence architecture in Europe', rather than pushing ahead with one of the defence policy swansongs of his predecessor.
Earlier reports speculated the White House believed concerns over Iran's long-range missile capabilities had been exaggerated.
President Obama said the new system 'will provide capabilities sooner, build on proven systems and offer greater defences against the threat of missile attack than the 2007 European missile defence programme'.
He added the new plan, a result of 'updated intelligence assessment', would involve missiles stationed on US navy ships and had the full support of defence secretary Robert Gates and the joint chiefs of staff.
Czech prime minister Jan Fischer had already said he had been phoned by President Obama to inform him of his decision.
Former US president George Bush had aggressively pushed for the construction of a radar site in the Czech Republic and ten interceptor missile silos in Poland to counteract the perceived threat of long-range missiles from Iran.
Russia bitterly opposed the plans throughout their fruition, believing them a threat to its own missile capabilities. The shelving of the defence shield represents a major coup for the Kremlin.
But the Obama administration's bid to press the reset button with US-Russian relations is likely to unnerve its eastern European allies.
President Obama's decision is not believed to have been made solely on the grounds of improving relations with Russia however.
The latest US intelligence is believed to have shown that Iran's short- and medium-range missiles are more of a viable threat, with efforts now being made to concentrate on counteracting them.
President Obama and his Russian counterpart Dmitry Medvedev are due to hold talks at the UN general assembly and G20 meeting next week.
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