The administration is instead directing NASA to turn to long-range research and development which could eventually lead to a manned space program to Mars.
“We are cancelling the program, not delaying it,” Mr Obama’s budget chief Peter Orszag said.
The decision means NASA will be constrained to low-earth orbits for years to come, and transforms the aspirations of the US space program.
The Constellation program was launched in 2004 by then-president George W Bush after the Columbia space-shuttle mission ended in disaster with the death of all seven crew members in 2003.
But NASA has faced growing pressure to cut its budget as the US Government’s debt soars and the country buckles under its deepest economic crisis since the Great Depression of the 1930s.
The agency has also seen dwindling political support, with its White House and congressional paymasters reluctant to fund the type of expensive manned space exploration that saw the agency put 12 men on the moon.
NASA is estimated to have already spent a little over $US9 billion (AUS$10 billion) on Constellation, including $US3.5 billion on the component Ares 1 program and $US3.7 billion on the Orion program.
The Obama Administration plans to hike NASA’s budget by $US5.9 billion over five years to boost commercial development, with the goal of a first commercial flight to the ISS launching by 2015, a government adviser said.
In the meantime, NASA will rely on Russia’s Soyuz spacecraft to ferry US astronauts to the orbiting space station after the shuttle program is retired in September.
Only five more shuttle flights, including an Endeavour mission scheduled for a February 7 launch, are planned.
The White House wants NASA to take on the lead innovator role it played during the 1960s with the Apollo program that put men on the moon, to help now develop a dynamic new commercial space sector.
Getting the cancellation through Congress will be a tough mission for the administration, as MPs from Florida and other states with close ties to the space program are likely to oppose moves that could threaten local jobs.