From his adopted hometown of Chicago, the city where the outgoing President found purpose in public life, Obama on Tuesday called on the country to be "anxious, jealous guardians of democracy", CNN reported.

Though Americans have largely grown more cynical about politics during his time in the White House, the outgoing President nonetheless continued to insist that change results when "ordinary people get involved, get engaged and come together to demand it".

"After eight years as your President, I still believe that."

"And it's not just my belief. It's the beating heart of our American idea -- our bold experiment in self-government," Obama told the American people in a large convention hall a few blocks from Grant Park, where he spoke to supporters on the night of his historic election in 2008.

The speech also reflected the unique situation Obama will confront as he leaves office. At just 55, he is preparing for an active post-presidency in which he will champion many of the same core issues he worked on in the White House, including minority rights and opportunities for young people.

"You were the change. You answered people's hopes, and because of you, by almost every measure, America is a better, stronger place than it was when we started," he said.

In 4,300 words, Obama's focus was his "optimism" about civic engagement going forward after a bitter campaign to replace him and lingering concern about how President-elect Donald Trump will handle foreign relations, national security, the economy and other big-ticket issues.

Trump has vowed to undo some of his signature policies. He would be sworn into office on January 20.

Obama called for a new social compact to creating opportunity for all, or else "the disaffection and division that has stalled our progress will only sharpen in years to come".

"Laws alone won't be enough. Hearts must change," the country's first black President said as he reflected on racial threats. He said he has not abandoned his vision of progressive change but warned that it now comes with a new set of caveats.

Senior advisors said Obama knows that many progressive, religious and ethnic minorities and immigrants were feeling apprehensive with the approach of the handover to Trump, the Loss Angeles Times reported.

Obama's successor was elected after promising to crack down on immigration, scrutinise Muslims in the US and challenge what he termed "political correctness".

Obama paid an emotional tribute to First Lady Michelle Obama and thanked Vice President Joe Biden who were all in attendance.

His voice quaked when describing Michelle's contribution. "You took on a role you didn't ask for and made it your own with grace and grit and style and good humour."

"You made the White House a place that belongs to everybody," Obama said to his wife.

Thanking Biden for serving alongside him in the White House, Obama said: "He is like a brother and family."

Biden too looked emotional and appeared to enjoy the adulation while his wife Jill Biden held his hand.

As he spoke before a rousing crowd of supporters, Obama was interrupted often with screams of "I Love you Obama."

When a protester holding a "Pardon All of Us" sign, chants of "four more years" drowned out the shouts.

"I can't do that," Obama said when the crowd begged him to run again, which is not allowed by the Constitution.

The 44th US President's goodbye was a dramatic reinterpretation of a presidential farewell address, ending his speech with his signature "Yes, we can" concept that propelled him into Oval Office in 2008.

He said: "Presuming goodness in others could be a risk", but asked the 20,000 strong crowd gathered there to "dive in and stay at it" whenever change should be brought.

He drew inspiration from the youngest. Obama recalled the young boy who offered his house and brotherhood to another child, a refuge from Syria.

He rallied the spirits of beleaguered Democrats, still reeling from Hillary Clinton's election loss in November.