The dispute has raised fears of military confrontation between the world's superpowers, with China determined to cement control of the strategically vital waters despite a July verdict that its claims have no legal basis.
"The landmark arbitration ruling in July, which is binding, helped to clarify maritime rights in the region," Obama told Southeast Asian leaders at a summit in Laos.
"I recognise this raises tensions but I also look forward to discussing how we can constructively move forward together to lower tensions and promote diplomacy and stability."
The verdict by an international tribunal in The Hague said China's claims to most of the waters — through which US$5 trillion in global shipping trade passes annually — had no legal basis.
It also said that a massive burst of artificial island-building activity undertaken by China in recent years in a bid to bolster its claims was illegal.
China angrily vowed to ignore the ruling, describing it as "waste paper", even though it had legal force through the United Nations Convention on the Law of the Sea.
Obama's emphasis on the ruling being "binding" will undoubtedly attract a strong reaction from China, which has argued the United States has no role to play in the dispute.
Other claimants in the sea are the Philippines, Vietnam, Malaysia and Brunei — all part of the 10-member Association of Southeast Asian Nations (Asean) bloc meeting in Laos — plus Taiwan.
Chinese Premier Li Keqiang is also in Laos this week, with Asean hosting a series of regional meetings, and will meet Obama later Thursday at an 18-nation East Asia summit.
'Serious concern'
Asean leaders released a statement on Wednesday saying they were "seriously concerned" over recent developments in the sea.
But intensive Chinese lobbying helped to ensure there was no mention of the July ruling in the Asean statement.
Asean works by consensus, and China has successfully pressured Cambodia and Laos in recent years to ensure the bloc does not gang together to heavily pressure Beijing.
However the Philippines released photos on Wednesday it said showed renewed Chinese island-building activity, in a deliberate move to throw the issue into the spotlight.
The Chinese ships were at Scarborough Shoal, a small fishing ground within the Philippines' exclusive economic zone that China took control of in 2012.
If China did build an island at the shoal, it could lead to a military outpost just 230km from the main Philippine island, where US forces are stationed.
It would also be a major step in China's quest to control the sea, giving it the ability to enforce an air defence identification zone across the waters.
Obama warned Chinese President Xi Jinping in March not to build at the shoal.
Military intimidation
Chinese island-building in the Spratlys archipelago — another strategically important location — has already triggered various US military shows of strength.
The United States has sent warships close to the new islands, and warplanes over them, deeply angering China.
Security analysts have said Chinese island-building at Scarborough Shoal could trigger a military confrontation.
China insisted repeatedly this week it was not undertaking any island-building activities at the shoal.
A barrage of other security threats were also in focus in Laos on Thursday, including North Korea's nuclear ambitions following its latest missile tests.
Obama warned on Monday that Kim Jong-Un's regime was dooming itself to further isolation, and the UN Security Council condemned the tests.
But North Korea responded by threatening on Wednesday to take "further significant measures".
Spectacular sideshow
A spectacular sideshow in Laos this week has been a spat between Obama and the acid-tongued Philippine President Rodrigo Duterte, whose nations are longtime allies.
Duterte launched a tirade against Obama on Monday after being told the US president planned to raise concerns about a war on crime in the Philippines that has claimed 3,000 lives in just over two months.
"You must be respectful. Do not just throw away questions and statements. Son of a whore, I will curse you in that forum," Duterte told reporters.
Obama cancelled a meeting with Duterte scheduled for Tuesday because of the outburst.
They met briefly on Wednesday night before a leaders' dinner, but only exchanged "pleasantries", according to the White House. — AFP
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