US President Barack Obama has vowed to reverse a tide of economic inequality threatening the American dream in his annual State of the Union address.

Mr Obama promised to wield his executive powers in a "year of action" to lift up workers, improve education and clean the environment if his foes in Congress baulk at more sweeping action.

"America does not stand still and neither will I," Mr Obama said, talking past the politicians gathered in the House of Representatives directly to millions of television viewers.

"Inequality has deepened. Upward mobility has stalled and too many still aren't working at all.

"Our job is to reverse these trends," US President Obama said, pounding out his points with a punchy, optimistic delivery, apparently keen to suggest despite five gruelling years, he still has energy and purpose for his task.

While focusing squarely on a domestic audience, Mr Obama strayed into foreign policy only briefly during his speech, as his cabinet and military brass looked on.

He vowed to support democracy in Ukraine, warned al-Qaeda's threat had evolved and yet again urged Congress to let him close the Guantanamo Bay detention centre in Cuba.

However, mostly Mr Obama mined a political seam that has proven rich in the past, billing himself as the champion of middle class families fighting to overcome the worst recession since the Great Depression.

He opened on an upbeat note, saying that thanks to "five years of grit" by the American people, the US economy was finally poised for a "breakthrough".

"The United States is better positioned for the 21st Century than any other nation on earth," Mr Obama declared, touting the lowest unemployment rate in five years and a rebounding housing market.

Yet he argued the "defining project of our generation is to restore" the promise of equality of opportunity for all Americans.

He promised to use executive action to raise the minimum wage for federal workers on new contracts from $7.25 to $10.10 per hour, and to create a new retirement savings "starter" scheme to help millions of Americans.

President Obama called on corporate CEOs to pledge not to discriminate against long-term unemployed job seekers, and to introduce new energy efficient fuel standards for trucks while working with cities and states to promote cleaner power.

But Mr Obama's vows of action are likely to reach far fewer Americans than could be helped through legislation.

While he has the power to raise the minimum wage for federal workers, a reluctant Congress would be required to extend the measure across the entire economy.

He called on politicians to "say Yes, give America a raise" but they appear unlikely to heed his call.

Such is the stranglehold Republicans have clamped on Congress, much of Mr Obama's second term agenda is stillborn.

Mr Obama's subtext was reviving a presidency that seems to be racing towards early lame duck status after a disastrous 2013.

He also needs to shield allies from being pulled down by his relative unpopularity with a 43% approval rating while Democrats are in peril of losing the Senate in mid-term elections.

The president's reputation was sullied by the disastrous roll out of his signature health care law, a government shutdown drama and perceived missteps abroad last year.

He admitted the Obamacare website needed fixing, but fiercely defended the principle of expanding coverage to almost all Americans, that Republicans have voted over 40 times to repeal.

The grand designs of the once inspirational president's first year in office are but a memory.

But there are signs that Mr Obama's rhetoric on economic disparity is paying off as Republicans also tackled the issue in their response to Mr Obama's address.

In the official Republican response, congresswoman Cathy McMorris Rodgers promised Americans an agenda that "empowers you, not the government".

"It helps working families rise above the limits of poverty and protects our most vulnerable."

With power ebbing at home, second term presidents often look for opportunity abroad.

But with America facing challenges from Syria to the South China Sea, there are few easy victories on offer for President Obama.

He defended an interim nuclear deal with Iran, which has many sceptics in Congress, as the best way to resolve a top security challenge "without the risks of war."

Mr Obama also reiterated his vow to veto a new sanctions bill that he fears could cause Iran to walk away from the negotiating table.

While al-Qaeda's core leadership was "on a path to defeat," the extremist threat was evolving through Yemen, Somalia, Iraq and Mali, he said.

In the emotional high point of the speech, Mr Obama praised a US soldier who was blown up in Afghanistan on his tenth combat tour abroad, but is fighting back from massive brain injuries.

"Like the America he serves, Sergeant First Class Cory Remsburg never gives up and he does not quit," he said, drawing a prolonged ovation for Sergeant Cory Remsburg, who was seated beside First Lady Michelle Obama.

The president argued that US diplomacy backed by force had resulted in the handover of Syria's chemical weapons, and was supporting difficult talks on an Israeli-Palestinian peace.