"While I could sit in church and pray all I want, I wouldn't be fulfilling God's will unless I went out and did the Lord's work," he said.
Obama, speaking after a tour of a local ministry in Zanesville, Ohio, said that he would rename the organisation as the Council for Faith-based and Neighbourhood Partnerships to "reflect a new commitment".
The proposal will cost $500 million a year and provide training and summer programmes for up to one million children.
However, Obama said that organisations that recieved government funds for the programme would be forbidden to discriminate on religious grounds in hiring and from proselytising with public funds.
"I believe deeply in the separation of church and state, but I don't believe this partnership will endanger that idea," Obama said.
Analysts said the announcement, in a speech to in the US state of Ohio on Tuesday, was a bid to reach out to US religious and evangelical voters.
However Obama's recent, more conservative pronouncements on issues such as gun rights, government surveillance and capital punishment could risk alienating more left-wing Democrat voters, analysts say.
No 'substantial shifts'
Obama on Tuesday disputed claims he was shifting positions in a bid to capture more voters.
|McCain is more popular among US
religious voters [GALLO/GETTY]
"I get tagged as being on the left and, when I simply describe what has been my position consistently, then suddenly people act surprised,'' he said.
"But there hasn't been substantial shifts there."
Both Obama and John McCain, the Republican presidential candidate, are vying for the crucial religious vote ahead of November's presidential election.
Many voter polls show McCain beating Obama by three to one or more among evangelical Christian voters.
However Obama hopes to do better than John Kerry, the previous Democratic presidential candidate, did in 2004, when his Republican rival Bush won four of every five evangelicals.