"It was always our intent to transfer detainees to other countries only under conditions that provide assurances that our security is being protected," Obama said.
But he added: "We will close Guantanamo prison, which has damaged our national security interests and become a tremendous recruiting tool for al-Qaeda."
Nearly half of the 198 detainees who are left at Guantanamo are from Yemen, and some of them had already been cleared to be sent home.
Tuesday's suspension announcement came after British newspaper The Times reported that at least a dozen former Guantanamo prisoners had rejoined al-Qaeda in Yemen.
Mitch McConnell, the senate opposition leader, welcomed the move to suspend the transfer of detainees to Yemen.
"Given the determined nature of the threat from al-Qaeda, it made little sense to transfer detainees from the secure facility at Guantanamo back to Yemen, where previously transferred detainees have escaped from prison and returned to al-Qaeda," he said.
But rights activists denounced the move to stop the transfers.
The Centre for Constitutional Rights said many of the Yemeni detainees were entering their ninth year of indefinite detention, and that holding them further would be unconscionable.
"We know from the military's own records that most of the detainees at Guantanamo have no link to terrorism," the group said.
David Remes, a US lawyer who represents 15 Yemeni inmates at Guantanamo, said politics had trumped justice in the decision.
"These men are going to continue to be held at Guantanamo solely because they had the misfortune of being Yemenis," he said. "Guilt and innocence make no difference in this equation."
But pushing for a tougher stance, Republican McConnell said Obama should also reconsider his decision to close Guantanamo altogether.
The US president has encountered various complications in trying to close the Guantanamo facility and has acknowledged he will not be able to meet a self-imposed one-year deadline to close it that he promised when he took office last January.
Just last month his aides announced the US government would proceed with buying an Illinois prison and bolstering security there so a limited number of Guantanamo detainees can be transferred to it.