Obama made history after becoming the first black person to win the presidential nomination of a major US party after more than 70 uncommitted delegates confirmed their support, raising his total to 2,156.
"Tonight, we mark the end of one historic journey with the beginning of another," Obama told a cheering crowd of 17,000 supporters in St Paul, Minnesota, where the Republican Party will hold its presidential nominating convention this September.
Clinton, who won more than 1,900 delegates, was defiant in defeat, saying she was making "no decisions tonight" about whether to stay in the race. She later told congressional backers that she would be open to becoming Obama's vice presidential running mate, whilst Obama hinted at a role for Clinton in his administration if he wins the presidential election in November.
"What gets Hillary Clinton up in the morning is an unyielding desire to improve the lives of ordinary Americans," he said in his address.
"When we finally win the battle for universal healthcare in this country, she will be central to that victory."
Obama's victory has helped shake off the cloud cast over his campaign by the fiery sermons of the Rev Jeremiah A Wright, his former pastor at Trinity United Church of Christ in Chicago, who blamed US policies for the September 11 attacks and declared "God damn America" for its racism.
Controversy stirred again in recent weeks after a guest preacher at Trinity, Catholic priest Father Michael Pfleger, parodied Clinton from the pulpit as saying, "There's a black man stealing my show."
Pfleger, pastor of St Sabina Catholic Church in Chicago, has since been asked by Chicago Cardinal Francis George to take a leave of absence "for a couple of weeks" to reconsider his remarks.
Obama condemned the comments of both Wright and Pfleger before announcing last week that he had decided to end his membership at Trinity.
"It's clear that now that I'm a candidate for president, every time something is said in the church by anyone associated with Trinity, including guest pastors, the remarks will be imputed to me even if they totally conflict with my long-held views, statements and principles," he was quoted by the Associated Press as saying.
Obama will be officially declared the Democratic nominee at the convention in August before going head-to-head with Republican nominee John McCain in November's presidential election.
