In a a major security policy reversal, US intelligence agencies will no longer be allowed to spy on the phone calls made by millions of Americans as President Barack Obama signed the USA Freedom Act on Tuesday.

The legislation was passed in Congress a day earlier following the expiration of the US Patriot Act, the law that empowered the National Security Agency (NSA) to collect Americans' phone records.

The new law would require companies such as Verizon Communications Inc and AT&T Inc, to collect and store telephone records just like the way they do now for billing purposes.

However, these companies will no longer routinely feed US intelligence agencies such data and will only be required to turn over the data to the authorities only in response to an official government request approved by the Foreign Intelligence Surveillance Court.

In a statement, President Obama said the USA Freedom Act "ends the bulk metadata program – the bulk collection of phone records – as it currently exists and puts in place new reforms."

"The government will no longer hold these records; telephone providers will. The Act also includes other changes to our surveillance laws – including more transparency – to help build confidence among the American people that your privacy and civil liberties are being protected," he said.

The Freedom Act came into being following the revelations made in 2013 by former NSA contractor Edward Snowden on how the US spy agency collected and searched records of phone calls of Americans looking for terrorism leads.

The disclosure of the covert operation led to debate over how to balance the need to gather intelligence to prevent terrorist attacks with the protection of an individual's privacy rights and civil liberties.

The passage of the USA Freedom Act resulted from an alliance between Senate Democrats and some conservative Republicans, which was deemed a victory for Obama and a setback for Senate Republican Majority Leader Mitch McConnell.

With the expiration of the US Patriot Act, US law enforcement and security agencies lost their legal authority to conduct "roving wiretaps" against terrorists using several disposable cell phones, and to target "lone wolf," or a suspect not connected with a specific terrorist group, Reuters reported.

Sen. Rand Paul, a Republican presidential candidate, played a key role in the passage of the bill, incurring the ire of McConnell who acknowledged that Paul had stymied his efforts to extend the provisions of the Patriot Act.

Paul said the Patriot Act was wasting resources that could be better used to target those planning attacks. He went further by accusing his critics of wanting an attack on the US "so they can blame it on me."

McConnell accused Paul and other senators who opposed the Patriot Act provisions of waging "a campaign of demagoguery and disinformation."

McConnell, who endorsed Paul for president, wanted to extend the Patriot Act provisions for five years but agreed to allow to vote on the Freedom Act despite its "serious flaws."

Sen. John McCain accused Paul of using the issue to raise money for his campaign.

"He obviously has a higher priority for his fundraising and political ambitions than for the security of the nation," he said.