The failure of Mr Obama to stand in the way of elements contained in the National Defense Authorization Act was immediately criticised by human rights groups.
Opponents of the bill say Mr Obama has lost his principles by disregarding the long-held belief that the military should not be used as a domestic police force.
Critics also say it is a clear dilution of Americans' human rights in a seemingly never-ending war on terror.
The House of Representatives voted 283-136 for the $662 billion measure on Wednesday night, a rare bipartisan vote that reflected the strong support for annual legislation that authorises money for the men and women of the military, as well as weapons systems and the millions of jobs they generate.
The Senate was expected to clear the bill today and send it to Mr Obama.
The House vote came just hours after the Obama administration abandoned its veto threat.
Mr Obama and senior members of his national security team - including Defense Secretary Leon Panetta and Secretary of State Hillary Rodham Clinton - had sought modifications in the detainee provisions.
Specifically, the bill would require that the military take custody of a suspect deemed to be a member of al Qaeda or its affiliates, and who is involved in plotting or committing attacks on the United States.
It is essentially the difference between treating someone as a criminal, who has the right to legal representation, or a prisoner of war - who can be held without charge for the duration of a conflict.
Unnerving many politicians on both sides, the legislation would deny suspected terrorists the right to trial and subject them to the possibility of years of detention.
Crucially, this also applies to Americans arrested within the U.S.
While House and Senate negotiators say the new provision will not affect domestic policing in the U.S., FBI Director Robert Mueller has expressed serious reservations about the detainee provisions.
Testifying before the Senate Judiciary Committee, Mr Mueller said a coordinated effort by the military, intelligence agencies and law enforcement had weakened al Qaeda, leading to the capture or death of many of its leaders.
He said handing over power to the military from the FBI or local police agencies would be divisive and impractical
He told Congress: 'The possibility looms that we will lose opportunities to obtain co-operation from the persons in the past that we've been fairly successful in gaining.'
The head of the CIA, the director of national intelligence, the attorney general and the Pentagon were all against the legislation.
But many senators supported the new powers, saying al Qaeda was already acting inside the U.S. and that followers should be treated as combatants, not civilians with constitutional protections.
we are so very very screwed