Barack Obama has abandoned the controversial Pentagon plan to build a missile defence system in Europe that had long soured relations with Russia.

In one of the sharpest breaks yet with the policies of the Bush administration, Obama said the new approach would offer "stronger, swifter and smarter" defence for the US and its allies. He said it would focus on the threat posed by Iran's short- and medium-range missiles, rather than its intercontinental nuclear capabilities.

Obama announced the reversal officially at a news conference today. "This new approach will provide capabilities sooner, build on proven systems to offer greater defences to the threat of attack than the 2007 European missile defence programme," he said.

He phoned the leaders of Poland and the Czech Republic last night to tell them he had dropped plans to site missile interceptors and a radar station in their respective countries. Russia had furiously opposed the project, claiming it targeted Moscow's nuclear arsenal.

The change of tack had been prompted by advances in missile technology and new intelligence about Iran's existing missile capabilities, Obama said.

The US president said "updated intelligence" on Iran's existing short- and medium-range missiles showed they were "capable of reaching Europe". He added that the US would continue its efforts to end Iranian attempts to develop an "illicit nuclear programme".

He said: "To put it simply our new missile defence architecture in Europe will provide stronger, smarter, swifter defences of American forces and America's allies."

During a visit to Moscow in July Obama indicated he was ordering a 60-day review of the scheme. According to today's Wall Street Journal, the findings, to be released next week, conclude that Iran's long-range missile programme is progressing more slowly than previously thought. Citing US officials, the paper said the White House believes Iran's short to medium-range programme poses a more potent and immediate danger.

In his press conference today, Obama made a point of rejecting Russia's objections to the missile defence shield. "Its concerns about our previous missile defence programmes were entirely unfounded," he said.

The Russian response suggested Obama's decision would not be met by any swift or generous concessions. A foreign ministry spokesman, Andrei Nesterenko, described the move as "obviously a positive sign for us" but made clear the decision had been a unilateral one taken by Washington alone. He suggested there had been no deals with Moscow on Iran or other issues. "That would disagree with our policy of resolution of any problems in relations with any countries, no matter how difficult or sensitive they may be."

The US decision will cheer many in government in western Europe who believed the scheme was an unnecessary provocation to the Russians. But today the Czech Republic and Poland expressed disappointment at the White House's decision to reverse track after six years of difficult negotiations. Senior sources in Warsaw and Prague said they would insist on the Americans honouring pledges they made to the Nato allies in return for agreeing last year to the plan for missile defence deployments.

Alexandr Vondra, a former Czech deputy prime minister and ambassador to Washington intimately involved in the negotiations with the Americans, said he was surprised. "This is a U-turn in US policy," he said. "But first we expect the US to honour its commitments. If they don't they may have problems generating support for Afghanistan and on other things."

Under the Bush administration the Pentagon spent years planning and negotiating to place 10 silos with interceptor rockets in northern Poland and to build a large radar station south of Prague to defend against a perceived ballistic missile threat from Iran.

The central European countries were keen to acquire the US installations and other military hardware as partial security guarantees against a resurgent Russia. Moscow claimed the project was aimed against Russia and threatened to deploy short-range nuclear weapons in the Russian exclave of Kaliningrad, which sits inside the European Union.

Obama's climbdown is likely to be seen by Russia as a victory for its uncompromising stance.

Today, however, analysts pointed out the decision would help Obama secure Moscow's co-operation on a possible new sanctions package against Iran and would further his desire to "reset" relations with Moscow following a dismal period under the Bush administration.

It would significantly boost the chances of a new treaty on strategic nuclear arms reduction between Washington and Moscow, they said. Both the US and Russia have agreed to come up with a successor treaty to Start 1 by December, when the current agreement expires.

"Hardliners in Russia don't want an agreement on Start. It will be very difficult now for Russia to avoid an agreement," said Ruben Sergeyev, a defence analyst in Moscow. "It [the decision to drop the US shield] creates a very positive ambience, despite the fact it was really an artificial thing."

The decision strengthens Dmitry Medvedev, the Russian president, who is due to make his first presidential trip to the US next week for the G20 meeting in Pittsburgh. The Obama administration has been keen to boost Medvedev's standing and authority at home, seeing him as a more moderate and less hostile interlocutor than Putin.

Today the Nato secretary general, Anders Fogh Rasmussen, said Obama's decision was "a positive step". Rasmussen said he had been briefed by the US envoy to Nato about it.

But the timing of the announcement is regarded as disastrous by the Poles. Eugeniusz Smolar, a former chief of Warsaw's Centre for International Relations, said: "We are disappointed." But he added that the Polish government had been assured by the Americans that promises of training with Patriot missile batteries and help in modernising the Polish military remained valid.

A few weeks ago, in a cri de coeur to Washington, several senior eastern European officials and public figures wrote a public letter to Obama complaining that their security interests were being ignored by the west to improve relations with Moscow.

Rasmussen, in his first big speech, is to call tomorrow for a new relationship between the western military alliance and Russia, taking more account of Moscow's security and strategic interests.

Russian experts said Obama's decision could only be seen as an unambiguous concession to Moscow, adding that it would severely disappoint the new Nato countries of eastern Europe. Yevgeny Miasnikov, a senior research scientist at Moscow's Centre for Arms Control, said the US administration would now consider ways of assuaging the Poles and Czechs, which might include providing Poland with Patriot interceptors capable of shooting down short- and medium-range missiles.

"Obama has taken a step in the direction of improving US-Russian relations. This will definitely help build a partnership," Miasnikov said. "Russia will also now make some concessions, maybe on strategic talks over nuclear arms reduction or maybe over Iran.

"Moscow will try to catalyse the process of improving US-Iranian relations and will facilitate dialogue between the two sides. I don't think threatening Iran is the way to solve this problem."