In one of his first acts after taking office last month, Obama ordered US government lawyers to review al-Marri's case.
According to those familiar with the case, that review has resulted in a decision to put him back into the civilian court system.
Al-Marri's lawyers have challenged his detention and the transfer into the civilian court system could avert a supreme court hearing in April on the case.
US officials told Reuters that lawyers from the US department of justice planned to tell the supreme court on Friday that the case should be dismissed as moot, officials said.
However Jonathan Hafetz of the American Civil Liberties Union, the lead lawyer representing al-Marri, said before the charges were confirmed that "this is something that should have happened seven years ago".
"In the United States it is illegal to detain people indefinitely without charge," he said.
"It is the right step but it is imperative that the Supreme Court review the case and make clear that this is illegal so it never happens again."
Al-Marri was arrested in late 2001 as part of the US Federal Bureau of Investigation's probe into the September 11 attacks.
Prosecutors initially indicted him on charges of credit card fraud and lying to the FBI, although al-Marri also denied those charges.
In June 2003, Bush said al-Marri had vital information about potential attacks, declared him an enemy combatant and ordered him transferred to military custody.