The announcement was made in a letter from Attorney General Eric Holder to congressional leaders in relation to two lawsuits, Pedersen v. OPM and Windsor v. United States, which challenge a section of DOMA that defines marriage for federal purposes as only between one man and one woman.
Obama "has made the determination," Holder wrote, that Section 3 "as applied to same-sex couples who are legally married under state law, violates the equal protection component of the Fifth Amendment."
Holder wrote that the president has instructed government lawyers to no longer defend the law in those two lawsuits.
However, administration officials pledged to continue to enforce the law, which remains in effect unless Congress repeals it or a court strikes it down.
The highly unusual, though not unprecedented, decision not to defend a federal law amounts to a major change of course for the administration which has previously said it was obligated to do so even if it disagreed with it.
Legal experts said the move would likely influence judges currently weighing federal lawsuits against DOMA and a handful of challenges to same-sex marriage bans at the state level.
"It's certainly going to be persuasive in federal courts that even the government, who had a responsibility to defend the statutes if it could find a basis for doing so, felt that a 'heightened scrutiny' does apply," said former George W. Bush solicitor general Ted Olson, who is leading the legal challenge against California's Proposition 8, which bans same-sex marriages in that state.
Judges have largely employed a loose legal standard, known as "rational basis," that requires only a reasonable relationship between a law's purpose and its effect to determine whether a gay marriage ban is constitutional.
But the Obama administration reasoned in its decision that a tougher standard ought to be imposed on arguments against unions between same-sex couples.
"The government has decided that prevailing social views of morality are no longer sufficient to justify discrimination against homosexuals," said American University constitutional law professor Stephen Vladeck.
"The administration has decided to abide by a higher standard then courts have thus far required," he said. "The heightened scrutiny standard is traditionally reserved for discrimination on the basis of sex, race, religion and other areas where minority groups should receive special consideration."
The news that Obama would drop his defense of the Defense of Marriage Act was hailed by gay rights activists.
"This is a monumental decision," said Joe Solmonese, president of the Human Rights Campaign, a gay rights group. "Congressional leaders must not waste another taxpayer dollar defending this patently unconstitutional law. The federal government has no business picking and choosing which legal marriages they want to recognize."
Republicans and opponents of same-sex marriage sharply criticized the administration's decision as an undue distraction from focus on the economy and an extraordinary break from precedent.
"While Americans want Washington to focus on creating jobs and cutting spending, the president will have to explain why he thinks now is the appropriate time to stir up a controversial issue that sharply divides the nation," said Brendan Buck, a spokesman for House Speaker John Boehner.
"It is a transparent attempt to shirk the [Justice] Department's duty to defend the laws passed by Congress," said Republican Rep. Lamar Smith of Texas, who chairs the House Judiciary Committee, in a statement. "This is the real politicization of the Justice Department-- when the personal views of the President override the government's duty to defend the law of the land."
DOMA was passed by a Republican House and Senate and signed into law by Democratic President Bill Clinton in 1996. The law means same-sex couples are not afforded the same rights as straight couples when it comes to Social Security benefits, hospital visitation and other rights.
White House spokesman Jay Carney said that while the administration would not defend DOMA it would remain a party in the legal cases so that they can proceed to a judgment and allow other interested parties the opportunity to step in and defend the law if they wish.
"The administration will do everything it can to assist the Congress if it so wishes to do that," Carney said. "We recognize and respect that there are other points of view and other opinions about this."
In California, where neither Gov. Arnold Schwartzenegger nor Gov. Jerry Brown, nor their attorneys general, chose to defend the state's ban on same-sex marriage, they remained parties in the case, allowing outside groups to provide legal counsel to defend the law.
In June 2009, for example, Obama's Justice Department invoked incest and adults marrying children as reasons to uphold DOMA.
Last month, then-White House press secretary Robert Gibbs said that "we can't declare the law unconstitutional…The president believes, as you said, that this is a law that should not exist and should be repealed. But we, at the same time, have to represent the viewpoint of the defendant."
Gibbs said that "given the current makeup of the Congress," having DOMA repealed would be "inordinately challenging."
The administration may now be hoping that a federal court will strike down the law nationwide, officially rendering it null.
In July 2010, a federal district court judge ruled DOMA unconstitutional. But the case remains on appeal.
Personally, the president does not support gay marriage, saying instead that he supports strong civil unions for gay and lesbian couples. But his opinion may be changing.
"He's grappling with the issue," Carney said today. "But he -- again, I want to make the distinction between his personal views, which he has discussed, and the legal issue, the legal decision that was made today. "
At a news conference in December of 2010, shortly after signing into law a repeal of the military's "don't ask don't tell' policy toward gay service members, Obama said of gay marriage, "My feelings about this are constantly evolving."
"I struggle with this," he said. "I have friends, I have people who work for me who are in powerful, strong, long-lasting gay or lesbian unions, and they are extraordinary people, and this is something that means a lot to them and they care deeply about."
Americans divide about evenly on gay marriage, according to the most recent ABC News/Washington Post poll.
Forty-seven percent said it should be legal, 50 percent illegal, with strong opinions on both sides.
As recently as 2006, 36 percent favored legalizing same-sex marriage with 58 percent opposed.
Gay civil unions, with "the legal rights of married couples in areas such as health insurance, inheritance and pension coverage," are less controversial -- 66 percent in favor, according to the latest poll, a new high by a substantial margin.
ABC News' Ariane de Vogue and Gary Langer contributed to this report.