The president told the US Environmental Protection Agency to reconsider immediately a request by California to impose its own strict limits on vehicle carbon dioxide emissions, blamed for contributing to global warming.
Obama, a Democrat, took over from former President George W. Bush last Tuesday.
Bush's Republican administration had denied the request, prompting California and other states to sue.
"The federal government must work with, not against, states to reduce greenhouse gas emissions," Obama said at the White House, taking a stab at his predecessor's policies.
"The days of Washington dragging its heels are over. My administration will not deny facts, we will be guided by them. We cannot afford to pass the buck ... onto the states."
Obama's directive, which is likely to result in a formal change in the coming months, could prompt as many as 18 states to follow California's lead by putting into effect tailpipe emissions standards that are tougher than federal mandates.
The president also directed the Department of Transportation to set boost fuel efficiency standards for automobiles by March 30 for model year 2011, giving manufacturers 18 months to prepare.
The rules are part of a 2007 law that calls for automakers' fleets to reach an average 35 miles per gallon by 2020. The Bush administration left Obama to finalize the standards because of the uncertainty gripping car companies.
Obama's decisions piled pressure on the ailing industry, struggling to survive in a deepening recession with the help of federal bailouts.
General Motors Corp said it is "working aggressively" to develop better hybrids and electric cars to reduce emissions and improve mileage, but policymakers must weigh in economic factors when making their decision.
"We're ready to engage the Obama administration and Congress on policies that support meaningful and workable solutions and targets," the company said in a statement.
Their plight may worsen as the US recession deepens. Economists polled by Reuters in advance of Friday's Gross Domestic Product report think GDP contracted at a 5.4 per cent rate on an annualised basis in the fourth quarter, which would be the worst performance since 1982.
SIGNALS ON ENVIRONMENT
Obama's steps were likely to be well received in Europe, which saw the United States under Bush as a roadblock to global action on climate change and hopes for greater US efforts to reduce domestic greenhouse gas emissions.
They drew praise from environmentalists, who supported Obama's election, but could annoy labor unions, another key constituency, whose members are upset about auto job losses.
Obama said the policy shift would help carmakers in the long run. "Our goal is not to further burden an already struggling industry, it is to help America's automakers prepare for the future," he said.
California's Republican Gov. Arnold Schwarzenegger, who urged the Obama administration to review the emissions decision, welcomed the move. "It is clear that California and the environment now have a strong ally in the White House," he said in a statement. At a news conference later he said the whole country should follow California's lead.
Democratic EPA Administrator Lisa Jackson said Obama's move signaled a "sea change" in US action on climate change.
But top Republicans accused the president of piling on the struggling auto industry and threatening jobs.
"Millions of American jobs will be placed in further jeopardy if automakers are forced to spend billions to comply with potentially dozens of different emissions standards in dozens of different states," said US House of Representatives minority leader John Boehner, a Republican whose state of Ohio has been hard hit by automotive factory closures.
The moves followed similar actions by Obama to reverse Bush decisions on foreign and domestic policy and signaled his desire to proceed quickly with campaign promises to fight climate change and reduce US dependence on foreign oil.
Obama laid out broad principles that he said his administration would follow. It was time for the United States to lead on climate change, he said, and dependence on foreign energy sources was a threat to US security.
"It will be the policy of my administration to reverse our dependence on foreign oil," he said, adding previous administrations had made similar goals.
"We need more than the same old empty promises. We need to show that this time it will be different," he said.
The State Department also announced Todd Stern, a senior White House official under former President Bill Clinton, will be the administration's principal adviser on international climate policy and strategy and its chief climate negotiator.
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