He was speaking on the sidelines of an economic summit of Asia Pacific nations (Apec), which opened in Manila.
Mr. Obama earlier pledged monetary and naval assistance to the Philippines, which has competing claims with China in the resource-rich region.
China – which claims most of the South China Sea – has repeatedly stated that its dredging work is legal.
The land reclamation, which began in late 2013, has turned submerged reefs into islands. China has said it has “no intention to militarise” those islands.
The territorial dispute is not officially on the agenda of the summit – but it is expected to cast a shadow over it.
China’s President Xi Jinping is also in Manila for the summit of about 20 heads of state and governments.
‘Defence of our ally’
Mr. Obama’s comments came after his meeting with Philippine President Benigno Aquino on Wednesday.
“We agree on the need for bold steps to lower tensions, including pledging to halt reclamation, new construction, and militarisation of disputed island in the South China Sea,” Mr Obama said.
Meanwhile, Mr Aquino stressed that freedom of navigation and overflight in the busy region must be continuously ensured.
Mr. Obama landed in Manila on Tuesday, but then immediately boarded a US-donated Philippines navy frigate that operates around the Spratly Islands, which are claimed by both the Philippines and China.
“We have a treaty obligation, an iron-clad commitment to the defence of our ally the Philippines,” he said on board.
“My visit here underscored our shared commitment to the security of the waters of this region and to freedom of navigation.”
He did not mention China, but announced that two more vessels would be transferred to the Philippines along with a $250m (£164.5m) package to enhance regional maritime security.