By Carey Gillam and Julia Edwards

(Reuters) - President Barack Obama on Friday condemned the Missouri city of Ferguson for "oppressive and abusive" actions against African-Americans that were laid bare in a U.S. Justice Department report accusing police and court officials of a range of illegal actions.

The president's comments came as U.S. Attorney General Eric Holder said on Friday dismantling the police department was a possibility.

"We are prepared to use all the power that we have... to ensure that the situation changes there," Holder said. "That means everything from working with them to coming up with an entirely new structure."

Ferguson Mayor James Knowles said three city workers who demonstrated "egregious racial bias" are no longer employed by the city, and said Ferguson officials are pursuing other reforms to try to reach a settlement with the U.S. Justice Department.

The Justice Department said it found that the mostly white police force routinely targeted African-Americans for arrests and ticketing in part to raise revenue for the city through fines and fees. It also found officers followed a pattern of using excessive force and illegally arresting people without cause, deploying attack dogs and tasers on unarmed people "unreasonably."

“What we saw was that the Ferguson Police Department in conjunction with the municipality saw traffic stops, arrests, tickets as a revenue generator, as opposed to serving the community, and that it systematically was biased against African Americas in that city who were stopped, harassed, mistreated, abused, called names, fined,” Obama said in comments made at a town hall-style meeting in South Carolina.

The federal investigation started after a white Ferguson police officer shot and killed an unarmed black teenager on Aug. 9, triggering nationwide protests and illuminating long-held complaints in Ferguson and elsewhere about police treatment of minorities.

The Justice Department said it did not find grounds to prosecute police officer Darren Wilson for killing 18-year-old Michael Brown, but it did find racially disparate practices rampant through the police force.

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Obama on Friday said he fully supported the decision not to charge Wilson.

"That was the decision that was made, and I have complete confidence and stand fully behind the decision that was made by the Justice Department on that issue," Obama said at the town-hall meeting.

The city and the Justice Department are attempting to negotiate reforms to address the problems found, and Knowles said the city has hired a consultant to work with the police.

Knowles said city leaders plan to meet with Justice Department officials in about two weeks to review reform strategies, and try to agree on a settlement.

Relations between the city and the Justice Department have been tense over the last several months amid the federal probe, and city officials have bristled at some of the report's allegations.

"There are a lot of things in that report that are very troubling and need to be addressed, but there are also things that are an overreach," Knowles said.

"Our hope is those negotiations lead to mutual satisfaction. But if we cannot come to terms... we are not going to settle."

Knowles would not comment on whether Police Chief Tom Jackson would be asked to step down. Several community and civil rights leaders, as well as some lawmakers, have called for Jackson's ouster for months.

"We're looking at where the breakdown was and then we'll make changes accordingly," Knowles said.

(Reporting by Carey Gillam in Kansas City and Julia Edwards in Columbia, South Carolina; Editing by Bill Trott, Lisa Lambert and Lisa Shumaker)