The Constellation programme, officials said, was behind schedule, over budget, a waste of resources and less important than other space investments.
The programme has already cost Nasa more than $9bn and will cost another $2.5bn to wind down, abandoning the development of the Ares-I and –V series of rockets, as well as the planned Orion spacecraft.
Charlie Bolden, the Nasa administrator, said the new mission would put the US on "a more sustainable and affordable approach to spaceflight through the development of transformative technologies and systems".
"We will blaze a new trail of discovery and development. We will facilitate the growth of new commercial industries. And we will expand our understanding of the Earth, our solar system, and the universe beyond," he said.
|Gone: The revised budget spells the end for Nasa's Ares rockets [GALLO/GETTY]
Marko Caceres, a space analyst with the Teal Group in Washington, told Al Jazeera the budget changes marked an effort by the US president to "redefine the future of human space exploration for the United States.
"Instead of letting Nasa take the lead and be the driver, as has traditionally been the case, president Obama wants US commercial industry to be the driver of a totally new industry".
Constellation, Caceres said, had never had enough money to become a reality, and was in any case only aimed at returning man to the moon, something Nasa had already done 40 years ago.
"The question is, is it more feasible to simply send another astronaut to the moon to plant the flag again? Or is it better for our economy to start up a whole new industry?" Caceres said.
Nonetheless Obama's plans to drop Constellation have already been criticised by some members of the US congress who have promised to fight the new budget.
Richard Shelby, the senior Republican on the senate appropriations subcommittee handling Nasa funding, said the plan would lead to "the death march for the future of US human space flight".
"Congress cannot and will not sit back and watch the reckless abandonment of sound principles, a proven track record, a steady path to success, and the destruction of our human space flight program," he said.
|Future astronaut missions may fly on board private spacecraft [EPA]
Shelby's home state of Alabama is the location of Nasa's Marshall Space Flight Centre, an important local employer.
Senator Bill Nelson of Florida, home of the Kennedy space centre, has also promised to fight efforts to cut back Nasa's operations.
But White House and Nasa officials say the changes will encourage the creation of high-tech jobs and enable the US to travel "further, faster and more affordably into space."
A key part of the new budget plan, said Charlie Bolden, the Nasa chief, would be to extend the life of the International Space Station to 2020 or beyond.
That, he said, would allow the US to "keep a commitment to our international partners and develop the full potential of this amazing orbiting laboratory."
Nasa meanwhile has insisted that scrapping Constellation does not mean an end to US ambitions to return to the moon, but, would on the contrary, open the way to going even further into space.
Sights on Mars
"The moon continues to be an important destination for humans along with near-Earth asteroids, and ultimately our destination is the moons and surface of Mars," Laurie Garver, Nasa deputy administrator, said.
"We're not cancelling our ambitions to explore space, we're cancelling Constellation."
Obama's plan was also praised by Edwin "Buzz" Aldrin, the second man to walk on the moon in 1969, who said that Nasa's revised mission looked to the future whereas Constellation was stuck in the past.
"We've already been to the Moon - some 40 years ago," Aldrin said in a statement.
"A near-term focus on lowering the cost of access to space and on developing key, cutting-edge technologies to take us further, faster, is just what our nation needs to maintain its position as the leader in space exploration."