In passing the law that allows legal action against Saudi Arabia over the 9/11 attacks, Congress over-ruled a veto by Mr Obama for the first time in his presidency.
So why is it so controversial, and what are its wider implications?
The Justice Against Sponsors of Terrorism Act (JASTA) was brought by the families of 9/11 victims, to allow them to sue any member of the Saudi government suspected of playing a role in the attacks.
In practice, the bill permits civil claims against a foreign state or official for injuries, death, or damages from an act of international terrorism.
Fifteen of the 19 terrorist who hijacked planes on 9/11 were Saudi nationals, and it has long been rumoured that senior Saudi officials were in some way linked to the attack.
Official inquiries since 2001 have found there is no evidence of either the Saudi government or senior Saudi individuals funding al-Qaeda.
However, a previously classified document earlier this year revealed "while in the United States, some of the 9/11 hijackers were in contact with, and received support or assistance from, individuals who may be connected to the Saudi government".
While the document did not provide any direct evidence of top-level Saudi involvement, it did raise new questions.
A veto is one of the most significant tools an American president has at his disposal, and has been used more than 2,500 times in America's history to prevent the passage of legislation. According to the US' House of Representatives, even the threat of a veto can bring about changes.
Congress can overrule a veto however - but only if it has the support of two-thirds of the House and Senate. This has only happened on 110 occasions since 1792.
Despite this, it is unusual for a president in recent years to get through two terms without congress overruling a veto. George W Bush had four overturned, while Bill Clinton had two during his tenure. The last presidency to go unchallenged was that of Lyndon B Johnson.
President Barack Obama, who has only used a veto on 12 occasions and had, until now, never had one overruled, fears the amended law will leave America open to similar suits from other countries - especially as there is little consensus internationally on what constitutes an act of terrorism.
Stephen Vladeck, professor of law at the University of Texas, explained: "The real concern is that the more the US weakens the concept of foreign sovereign immunity, the more that the weakening will be used against it.
"President Obama is concerned that [something like] a drone strike against a suspected al-Qaeda target in Yemen or Pakistan or Somalia could very well be deemed by those countries as terrorism which could subject the US to significant liability in those courts."
But Terry Strada, national chair for 9/11 Families United For Justice Against Terrorism, has disagreed that the bill could backfire in the way the White House has warned.
"If we're not funding terrorist organisations and killing people, then we don't have anything to worry about," she said.
The bill may also have an impact on relations with Saudi Arabia, a key ally for the US in the Middle East.
Salman al-Ansari, president of the Saudi American Public Relation Affairs Committee, said Saudi Arabia could reduce valuable security and intelligence co-operation as a result.
The idea was to "clear away" obstacles and force an American court to answer whether and to what extent the Saudi government was involved in the 9/11 attacks.
But Professor Vladeck says in its creation the bill has created more blocks which will "probably" lead to "more litigation".
And even if the outcome is successful for the families, it will be little more than symbolic, he believes.
"The problem with JASTA is, it does not allow an American court to seize Saudi assets, or any foreign sovereign's assets, for this kind of claim," he says.
"So the best the plaintiffs can hope for is a piece of paper that says, yes the Saudi government was indirectly responsible because of funding, no you don't get any damages."
A new bill passed through the US Congress is creating a storm - with President Barack Obama and the CIA warning of its dire consequences.