President Barack Obama has ordered curbs on the use of bulk data collected by US intelligence agencies, saying civil liberties must be respected.
Obama said such data had prevented terror attacks at home and abroad, but that in tackling threats the government risked over-reaching itself.
However civil liberties groups have said the changes do not go far enough.
The announcement follows global anger after details of the work of US intelligence agencies were leaked.
Edward Snowden, the former contractor at the US National Security Agency (NSA) who leaked the information, is wanted in the US for espionage and is now living in exile in Russia.
The leaked documents revealed that the US collects massive amounts of electronic data from communications of private individuals around the world, and that it has spied on foreign leaders.
The latest revelations claim that US agencies have collected and stored almost 200 million text messages every day across the globe.
An NSA programme called Dishfire extracted and stored data from the SMS messages to gather location information, contacts and financial data, according to the Guardian newspaper and Channel 4 News.
In his much-anticipated speech at the Department of Justice, Obama said he would not apologise for the effectiveness of US intelligence operations, and insisted that nothing he had seen indicated they had sought to break the law.
It was necessary for the US to continue collecting large amounts of data, he said, but acknowledged that doing so allowed for “the potential of abuse”.
“The reforms I’m proposing today should give the American people greater confidence that their rights are being protected, even as our intelligence and law enforcement agencies maintain the tools they need to keep us safe,” he said.
Details of the times, numbers and durations of phone calls – known as metadata – are currently collected and held by the NSA. But Obama said he was ending that system “as it currently exists”.
He has asked the attorney general and the intelligence community to draw up plans for such metadata to be held by a third party, with the NSA required to seek legal permission before it could access them.
A panel of independent privacy advocates would also sit on the secret Foreign Intelligence Surveillance Court (FISC) which has responsibility for giving permission for mass surveillance programmes.
Obama also offered assurances to non-Americans, saying people around the world “should know that the United States is not spying on ordinary people who don’t threaten our national security”.
“This applies to foreign leaders as well,” he said, promising that from now on the US “will not monitor the communications of heads of state and government of our close friends and allies”.
That announcement follows revelations that the US had spied on friendly foreign leaders, including the personal mobile of German Chancellor Angela Merkel.
But he was also critical of nations he said “feign surprise” over the leaks but “privately acknowledge that America has special responsibilities as the world’s only superpower” and have used the information gathered for their own purposes.