Arizona Governor Jan Brewer signed into law on Friday a measure criminalizing undocumented immigrants and requiring police to verify the immigration status of anyone suspected of being in the country illegally.
Brewer, a Republican seeking re-election, said the measure "represents another tool for our state to use as we work to solve a crisis we did not create and the federal government has refused to fix."
Some 460,000 undocumented immigrants live in Arizona, according to official estimates.
The governor signed the bill into law as hundreds gathered outside the state capitol in Phoenix to protest an initiative that President Barack Obama described earlier Friday as "misguided".
Brewer insisted the law would protect all Arizona residents from the drug cartels operating along the US-Mexico border and promised the measure would not lead to racial profiling.
"I will not tolerate racial discrimination or racial profiling in Arizona," the governor said, responding to critics who said the new law would practically require law enforcement officers to target Hispanics.
Speaking at a White House ceremony where 24 active-duty members of the military became US citizens, Obama referred to the Arizona bill as one of the "misguided efforts" arising from frustration with the country's broken immigration system.
The people at Friday's naturalization ceremony, he said, "played by the rules. They have earned their citizenship. And so on a day like this, we are also reminded of how we must remain both a nation of immigrants and a nation of laws."
"This includes fixing America's broken immigration system. Over the years, many have attempted to confront this challenge, but passions are great and disagreements run deep. Yet surely we can all agree that when 11 million people in our country are living here illegally, outside the system, that's unacceptable," the president said.
He said the lack of responsible action on immigration by the federal government "will only open the door to irresponsibility by others. And that includes, for example, the recent efforts in Arizona, which threatened to undermine basic notions of fairness that we cherish as Americans."
Obama said that he asked officials of his administration to watch carefully what happens in Arizona "and examine the civil rights and other implications of this legislation."
The president argued yet again in favour of a comprehensive reform of immigration laws.
Undocumented immigrants, he said, "have a responsibility - to pay their back taxes and admit responsibility for breaking the law, pay a penalty, learn English, pass criminal background checks, and get right with the law - or face removal - before they can get in line and eventually earn their citizenship."