Nasa has already spent more than $9bn on the Constellation programme, which was initiated under the previous administration of George Bush.
Last October the agency conducted the first test of its prototype Ares 1-X rocket, which it had planned to be the successor to the space shuttle.
The 100-metre tall rocket had been seen as the partner to a much larger Ares V heavy lift rocket, which together would have been used to ferry men and machinery beyond Earth orbit on missions to the moon and, eventually, Mars.
Constellation and plans for a large-scale return to the moon came about following the investigation into the 2003 Columbia shuttle disaster, which recommended that Nasa needed a new goal.
|The increased funds will be used to extend the life of the space station [Photo: Nasa]
But the future for the four-year-old programme now looks uncertain with the changes Obama is set to propose.
The last manned mission to the moon was Apollo 17 in 1972.
Since then all manned spaceflight has been in low Earth orbit.
Speaking to the Associated Press on condition of anonymity, a senior Nasa official said "It certainly appears that the Bush moon mission is not going to be included" in future funding plans.
An unnamed White House official told the New York Times on Thursday that the Obama plan would "put Nasa on a more sustainable and ambitious path to the future."
"My biggest fear is that this amounts to a slow death of our nation's human space flight programme"
However, the reported changes have triggered an angry reaction from some members of the US Congress, particularly politicians from Texas, home of the Johnson space centre and Nasa's mission control; and Florida, home of the Kennedy space launch centre.
In a statement Florida congressman Bill Posey, a Republican, said he was alarmed that the president "seems determined to abdicate America's leadership in human space exploration."
"My biggest fear is that this amounts to a slow death of our nation's human space flight programme; a retreat from America's decades of leadership in space, ending the economic advantages that our space programme has brought to the US, and ceding space to the Russians, Chinese and others," he said.
According to administration officials, the Obama plan will add almost $6bn to the Nasa budget over the next five years.
That is well below the $3bn-a-year increase that a special independent panel said last year was needed for Nasa to successfully pursue a human spaceflight programme beyond low-Earth orbit.
|Nasa has already spent $9bn on developing the Aires rockets [Photo: Nasa]
Instead, of the additional $6bn being proposed, much of the funds would be directed at commercial companies to develop a new spacecraft for transporting astronauts to and from the ISS.
Until now Nasa has designed and operated its own space craft, like the shuttle and Apollo capsules, or leased space on missions operated by the Russian space agency.
But the plan to use a commercial approach has drawn scepticism from some quarters, with critics questioning whether private companies can offer significantly better value and quicker development time than the already-established Constellation programme.
There have also been questions raised about what impact the commercial imperative might have on astronaut safety.
Among the companies expected to bid for the so-called space taxi contract are United Launch Alliance - a tie up between Boeing and Lockheed Martin – and Space Exploration Technologies, led by Elon Musk, the founder of internet payment service PayPal.