The prospect of a shutdown on Tuesday increased sharply after Republicans in the House of Representatives passed a resolution that would fund the US government but only if Democrats agreed to a one-year delay to Mr Obama's controversial healthcare reforms.
The Republican-controlled House approved the amendment by a mostly partisan vote of 231-192.
The Republican proposal was quickly rejected by Mr Obama who has long ruled out making any concessions over the so-called "Obamacare" legislation, which was passed by Congress and declared legal last year by the US Supreme Court, but is still loathed by Republicans.
The vote in the House of Representatives came despite an earlier White House statement promising that Mr Obama would veto any resolution that delayed his signature first-term legislative achievement.
The current spending Resolution expires at midnight on Monday, leaving little or no time to reach an 11th hour compromise to avert the shutdown.
The White House accused right-wing anti-government "Tea Party" Republicans of seeking to "advance a narrow ideological agenda" by trying to link the roll-back of Obamacare to the so-called "Continuing Resolution" to fund the US government.
"By including extraneous measures that have no place in a government funding bill and that the President and Senate already made clear are unacceptable, House Republicans are pushing the Government toward shutdown," the President's office had warned.
The Republican move was slammed by the leadership in the Democrat-controlled Senate who had announced even before the vote that they would reject the Republican proposals, saying they would not be "extorted by Tea Party anarchists." Harry Reid, the senior Democrat in the Senate, said the Senate would "reject" the Republican proposal: "After weeks of futile political games from Republicans, we are still at square one," he added.
"You have been hijacked by a group called the Tea Party," Democratic Representative David Scott of Georgia said angrily after the House of Representatives vote.
Republicans were defiant, however saying that a government shutdown would be the responsibility of Democrat-controlled senate if it failed to pass the House resolution.
"The American people don't want a government shutdown, and they don't want Obamacare," House Republican leaders said in a statement. "We will do our job and send this bill over, and then it's up to the Senate to pass it and stop a government shutdown." Earlier in the day, Mr Obama had used his weekly address to the nation to warn Republicans against trying to use the budget fight to extract concessions over health reforms.
"I don't know how to be more clear about this: no one gets to threaten the full faith and credit of the United States of America just to extract ideological concessions," he said.
"No one gets to hurt our economy and millions of innocent people just because there are a couple laws you don't like. It hasn't been done in the past, and we're not going to start doing it now." The mounting crisis comes after a week of back-and-forth between the Democrat-controlled Senate and the Republican-controlled House over how to pass the stop-gap budget measure.
This week the Senate sent back a previous draft of a Resolution that denied funding for Obamacare and returned it to the Republican-controlled House to reconsider.
However on Saturday lunchtime after a meeting on Capitol Hill, Republicans announced they would push for the one-year delay in the law – a "compromise" move that Democrats and the White House had indicated in advance would be unacceptable.
The debate over whether to use government funding as a weapon to extract concessions over Obamacare has bitterly divided the Republican Party, setting the more moderate leadership against a hardcore element of ideological, small-government Tea Party members.
It has been estimated that a government shutdown, which would see many non-essential services such as parks and passport offices close, could cost the US economy up to $2bn dollars. About 800,000 US Federal government workers would be put on temporary unpaid leave.
The fight over passing a Continuing Resolution prefigures a potentially much more serious dispute later next month, when Congress will have to extend the US Debt Ceiling which the US Treasury has estimated will be reached by October 17.
Economists warn that if partisan politics leads to a failure to agree to a new Debt Limit it would have far-reaching consequences for both the US and the global economy as the world's reserve currency is threatened with default.
" Let there be among you a group that invites to the good, orders what is right and forbids what is evil, and they are those who are successful "[TMQ 3:104]