China immediately questioned the U.S. move and said it deserved further scrutiny.
Emphasizing that a U.S. presence in the Asia-Pacific region is a top priority of his administration, Obama stressed that any reductions in U.S. defense spending will not come at the expense of that goal.
"Let there be no doubt: in the Asia Pacific in the 21st century, the United States of America is all in," he said.
For Obama, Asia represents both a security challenge and an economic opportunity. Speaking in broad geopolitical terms, the president asserted: "With most of the world's nuclear powers and some half of humanity, Asia will largely define whether the century ahead will be marked by conflict or cooperation, needless suffering or human progress."
Virtually everything Obama is doing on his nine-day trip across the Asia-Pacific region has a Chinese subtext, underscoring a relationship that is at once cooperative and marked by tensions over currency, human rights and military might.
China's military spending has increased threefold since the 1990s to about $160 billion last year, and its military recently tested a new stealth jet fighter and launched its first aircraft carrier. A congressional advisory panel on Wednesday urged the White House and Congress to look more closely at China's military expansion and pressed for a tougher stance against what it called anticompetitive Chinese trade policies.
The expanded basing agreement with Australia is just one of several initiatives Obama has taken that is likely to set Beijing on edge at a tricky time. The U.S. is China's second largest trading partner, and the economies are deeply intertwined. Chinese leaders don't want the economy disrupted when global growth is shaky and they are preparing to transfer power to a new leadership next year.
Over the weekend while playing host to Chinese President Hu Jintao and other Pacific rim leaders at a summit in Hawaii, Obama said the U.S. would join a new regional free trade group that so far has excluded China. That added an economic dimension to what some Chinese commentators have called a new U.S. containment policy that features reinvigorated defense ties with nations along China's perimeter, from traditional allies Japan and the Philippines to former enemy Vietnam, all of whom are anxious about growing Chinese power.
China was immediately leery of the prospect of an expanded U.S. military presence in Australia. Foreign Ministry spokesman Liu Weimin said there should be discussion as to whether the plan was in line with the common interests of the international community.
Responding to questions at a news conference Wednesday with Australian Prime Minister Julia Gillard, Obama sought to downplay tension between the world powers. "The notion that we fear China is mistaken," he said.
Obama avoided a confrontational tone with China in his speech to the Australian parliament, praising Beijing as a partner in reducing tensions on the Korean Peninsula and preventing proliferation.
"We'll seek more opportunities for cooperation with Beijing, including greater communication between our militaries to promote understanding and avoid miscalculation," he said.
In a note of caution, however, he added: "We will do this, even as continue to speak candidly with Beijing about the importance of upholding international norms and respecting the universal human rights of the Chinese people."
With military bases and tens of thousands of troops in Japan and South Korea, the United States has maintained a significant military presence in Asia for decades. Australia lies about 5,500 miles south of China, and its northern shores would give the U.S. easier access to the South China Sea, a vital commercial route.
The plan outlined by Obama will allow the United States to keep a sustained force on Australian bases and position equipment and supplies there, giving the U.S. ability to train with allies in the region and respond more quickly to humanitarian or other crises. U.S. officials said the pact was not an attempt to create a permanent American military presence in Australia.
About 250 U.S. Marines will begin a rotation in northern Australia starting next year, with a full force of 2,500 military personnel staffing up over the next several years. The United States will bear the cost of the deployment and the troops will be shifted from other deployments around the world. Having ruled out military reductions in Asia and the Pacific, the Obama administration has three main areas where it could cut troop strength: Europe, the Middle East and the U.S.
All U.S. troops are being withdrawn from Iraq by the end of this year, and a drawdown in Afghanistan is underway. But the Pentagon has said recently that the U.S. will maintain a major presence in the greater Middle East as a hedge against Iranian aggression and influence. A more likely area for troop reductions is Europe, although no decisions have been announced.
The debate over defense budgets is just one aspect of a broader political fight over fixing the nation's debt problem during a presidential election season. Already, the Pentagon is facing $450 billion in cuts over ten years, as part of a budget deal approved last summer. And if a special congressional committee can't agree on $1.2 trillion in more long-term cuts or Congress rejects its plan, then cuts of $1.2 trillion kick in, with half coming from defense.
Australia's Gillard said, "We are a region that is growing economically. But stability is important for economic growth, too." She said that "our alliance has been a bedrock of stability in our region."
Obama's visit is intended to show the tightness of that relationship and he hailed the long ties between the United States and Australia, two nations far away that have spilled blood together
"From the trenches of the First World War to the mountains of Afghanistan - Aussies and Americans have stood together, fought together and given their lives together in every single major conflict of the past hundred years. Every single one," he said.
Obama had a packed day-and-a-half in Australia, his first trip here as president after canceling two previous tries. After addressing Parliament, Obama was flying to the northern city of Darwin, where some of the Marines deploying to Australia next year will be based.
Associated Press writers Erica Werner and Rod McGuirk in Canberra and Robert Burns in Washington contributed to this report.