With Gaddafi's son Seif-al-Islam captured, the Libyan capital was at the centre of the most crucial offensive in the strife-torn country, and Obama said it was clear that Tripoli was now slipping out of the grasp of the "tyrant".
He said the Libyan leader needs to acknowledge the reality that he no longer controls the country and should immediately relinquish power to prevent any further bloodshed.
"Tonight, the momentum against the Gaddafi regime has reached a tipping point. Tripoli is slipping from the grasp of a tyrant. The Gaddafi regime is showing signs of collapsing," Obama said in a late night statement.
"The people of Libya are showing that the universal pursuit of dignity and freedom is far stronger than the iron fist of a dictator," he said.
Obama said the surest way for the bloodshed to end is for Gaddafi and his regime to recognise that their rule has come to an end.
"Gaddafi needs to acknowledge the reality that he no longer controls Libya. He needs to relinquish power once and for all," he said.
The Libyan rebels, backed by NATO airstrikes, captured parts of Tripoli, entering perhaps the final and decisive phase in their bid to oust Gaddafi.
White House Deputy Press Secretary, Josh Earnest, said Obama had been receiving regular updates from his national security aides on Libya.