President Barack Obama says the move is neither an amnesty, nor a path to citizenship, but the right thing to do: those aged between 16 and 30 who have lived in the US continuously for five years will be eligible to stay in the US.
Speaking at the White House, President Obama says "it makes no sense to expel talented young people" from the US, the BBC reports.
President Obama's decision to halt the deportation young undocumented immigrants has generated a wave of positive reactions from the Latino community in the US and from advocates of immigration reform.
His critics, however, accuse the president of ignoring Congress by using "prosecutorial discretion" - his executive prerogative - to implement the measure. They also say it is a strategic move in his bid for re-election.
The initiative addresses one of the most sensitive aspects of the immigration issue: what to do with the children who were brought in illegally by their parents.
Allowing undocumented people between the ages of 16-30 who have been in the country for at least five consecutive years to remain in the country and apply for work permits is estimated to affect up to 800,000 people.
"This is great news," said Clarissa Martinez, of the National Council of La Raza, the largest Latino advocacy organisation in the US. "It is the correct use of prosecutorial discretion in light of the inaction from Congress to approve a comprehensive immigration reform."
Prosecutorial discretion is the executive's prerogative to apply policies without a debate or approval from the legislative branch. The new policy reflects part of a bill that has been deadlocked in Congress for years - the so-called Dream Act that aimed to provide young people brought to the US as minors with a path towards US citizenship.
Proposals for the easier pathway re-energises what, until recently, was a lacklustre campaign and will make his Republican rival Mitt Romney pay attention to the immigration issue in one way or another.
Hispanics are a demographic group considered crucial for success in the upcoming presidential election and with whom Mr Romney has had difficulties connecting, the BBC reports.
At one point there was bi-partisan backing for immigration reform, but changes in the composition of both the House of Representatives and the Senate, as well as the emergence of the right-wing Tea Party have sapped support and energy for the measures.
Mary Giovagnoli, director of the Center for Immigration Policy (IPC), says the Obama administration realised how many resources were being wasted in processing the deportation of thousands of people who never represented any threat to the country.
"The thinking of the government evolved to recognise that it had to take bolder steps in this immigration issue," Ms Giovagnoli says. "This is the perfect and justifiable moment to struggle on this behalf."
She says that with the Supreme Court set to rule on whether individual states can apply their own harsh immigration laws, Mr Obama's new policy is indispensable for immigrants.
It could very well revitalise his campaign.
"There had clearly been some disappointment from the Latino electorate but this is going to fill them with enthusiasm," Maria Cardona, a strategist for the Democratic Party, said.
"There are going to mobilise in numbers, not just themselves but their friends, acquaintances and families who are citizens who can vote and will support the president as they hadn't perhaps before."
But some other commentators believe that the president has taken the most explicit step yet in ignoring the constitutional functions of Congress.
"I don't think it's too much to describe this as a lawless act," Mark Krikorian from the Center of Immigration Studies in Washington says. "This is really making immigration law without the input from Congress."
Mr Krikorian points out that, in principle, he is not against the Dream Act, but any decision on immigration must be in consultation with the legislators.
"This administration is willing to do whatever it takes, even outside the law, to achieve its political objectives. It's a desperation move," he says.