The move is likely to affect the five detainees charged with having played key roles in the September 11, 2001 attacks on New York and Washington, including Khalid Sheikh Mohammed, who has been accused of planning the attacks.
Obama said he would also place restrictions on the use of hearsay evidence, so that the "burden will no longer be on the party who objects to hearsay to disprove its reliability".
Detainees would have expanded rights to choose their own legal representation and basic protections will be provided for those who refuse to testify, he said.
Obama also said he would work with congress "on additional reforms that will permit commissions to prosecute terrorists effectively and be an avenue, along with federal prosecutions in Article III courts, for administering justice".
Human rights and civil liberties groups were critical of the decision, saying the tribunal system should be scrapped.
"It's disappointing that Obama is seeking to revive rather than end this failed experiment," Jonathan Hafetz, a lawyer at the American Civil Liberties Union, said before Obama's announcement.
|Obama has already faced criticism
over the move [AFP]
"There's no detainee at Guantanamo who cannot be tried and shouldn't be tried in the regular federal courts system.
"Even with the proposed modifications, this will not cure the commissions or provide them with legitimacy. This is perpetuating the Bush administration's misguided detention policy."
A total of 13 of the 241 detainees held at Guantanamo Bay are currently in the military tribunal system, which has only convicted three prisoners in eight years.
Obama had been critical of the military tribunal system in the past, describing them in June 2008 as an "enormous failure".
On Friday, he said he had always agreed with them in principle but that the way the Bush administration had set them up was wrong.
"I objected strongly to the Military Commissions Act that was drafted by the Bush administration and passed by congress because it failed to establish a legitimate legal framework and undermined our capability to ensure swift and certain justice against those detainees that we were holding at the time."
The decision to restart the process means trials would have to finish before the Guantanamo facility is closed in January 2010, or the detainees would need to be transferred to the US mainland, where they would have more legal rights.
Obama has come under increasing pressure over the treatment of al-Qaeda suspects after memos written by Bush-era legal officials released last month that argued that tactics including waterboarding, which simulates the sensation drowning, were not torture.