The United States will try Khalid Sheikh Mohammed and four co-conspirators over the September 11th attacks in 2001 at Guantanamo Bay.
US Attorney General Eric Holder announced today that the men could face the death penalty if convicted by the military court.
In making the announcement, Mr Holder repeated his belief that federal courts are the best place to prosecute terrorism suspects but said the government's hands "were tied" by Congress, which in December adopted restrictions on prosecuting Guantanamo prisoners in civilian courts.
Mr Holder said the United States still intends to close the military prison at Guantanamo.
The announcement is an embarrassing reversal of the administration's decision in November 2009 to try Mohammed in a court near the site of the World Trade Center attack that killed nearly 3,000 people.
The decision was an admission that Mr Obama has not been able to overcome political opposition to his effort to close the prison for terrorism suspects and enemy combatants at Guantanamo Bay, a key 2008 campaign promise. It came on the day he kicked off his campaign for re-election in 2012.
James Carafano, a foreign policy expert at the conservative Heritage Foundation think tank, said a military trial for the five men was "the only rational course of action," which Monday's decision effectively acknowledged.
"It's really a tacit admission about how much of the earlier rhetoric (of the Obama administration) was about the politics and not about the reality or legality of Guantanamo," Mr Carafano said.
President Obama has called the Guantanamo Bay facility, set up by his predecessor President George W. Bush, a recruiting symbol for anti-American groups and said allegations of prisoner mistreatment there had tarnished America's reputation.
He promised to close the prison by the end of his first year in office, but that deadline passed with no action as the
administration confronted the hard reality of finding countries willing to accept custody of the inmates.
The prison still holds 172 people, down from 245 when Obama took office in January 2009.
The decision to try the five men before military commissions was praised in New York and Washington. New York City Mayor Michael Bloomberg said the cost of holding the trials in Manhattan would have been near "a billion dollars" at a time of tight budgets.
Mr Holder said he still believed the 9/11 suspects would best be prosecuted in US civil courts, despite strong congressional opposition.
In moving the case back to a military commission, the Justice Department unsealed a nine-count indictment against Mohammed, an al Qaeda leader captured in Pakistan in 2003, and four others: Walid bin Attash, Ramzi Binalshibh, Ali Abdul Aziz Ali and Mustafa Ahmed al Hawsawi.
Reuters