The move extends to all commercial enterprises an exemption already given to religious institutions.
Rights groups, physicians, Democrats and ordinary citizens were outraged, and #HandsOffMyBC was a top trending hashtag on Twitter while the American Civil Liberties Union threatened a lawsuit.
But the White House insisted it was a matter of religious freedom.
The ruling expands “exemptions to protect moral convictions for certain entities and individuals whose health plans are subject to a mandate of contraceptive coverage” under Obamacare, a note published by the US Department of Health and Human Services said.
Millions of American women who had the cost of contraception reimbursed could be affected by the decision, which conservative groups had been seeking since Obamacare began.
Challenges to Obamacare had reached the US Supreme Court, which in 2014 ruled that family-owned private companies could choose not to provide contraceptive coverage to female employees on religious grounds.
In May, Trump signed a decree on religious liberty ordering his administration to take into account objections of conscience on matters of contraception.
Obamacare is the common name for the Affordable Care Act, health reforms that took effect under former president Barack Obama in 2010. It allowed millions of people to get health insurance.
It was not immediately clear how many women would be affected by the new ruling. The Trump administration, basing estimates off the number of employers who had previously filed lawsuits over the Obamacare requirement to fully cover the costs of birth control, said it would only be about 120,000 women.
A 2016 government study said Obamacare had guaranteed that 55.6 million women with private insurance had access to free birth control.
The American Civil Liberties Union said it was “suing the Trump administration to block new rules allowing employers to deny insurance coverage for birth control.”
Planned Parenthood said the new rule “puts our birth control coverage at risk.”
The non-profit health organization, targeted for cuts by Trump’s administration because it provides abortion services, said on Twitter that the decision on contraception coverage “shows the Trump admin’s disdain for women’s health & lives.”
Bernie Sanders, who sought the Democratic nomination for president in last November’s election, called the new rule sexist.
“It’s the latest display of Republicans’ total disdain for women’s ability to control their own lives,” he said.
The American Congress of Obstetricians and Gynecologists said the decision would threaten women’s health.
“These rules will negatively impact the health of women and their families by limiting access to essential preventive care,” the organization’s president, Haywood Brown, said in a statement.
“Contraception is a medical necessity for women during approximately 30 years of their lives. It improves the health of women, children and families as well as communities overall,” said Brown.
But the White House framed it as an issue of religious liberty and asserted that the law was on its side.
“The president believes that the freedom to practice one’s faith is a fundamental right in this country and that’s all today was about,” White House press secretary Sarah Huckabee Sanders told reporters.
“I don’t understand why that should be an issue. The Supreme Court has validated this decision, certainly many times over and the president is somebody who believes in the constitution,” Sanders said.
Repealing Obamacare was one of Trump’s most strident campaign promises. He described Obamacare as a “total disaster,” but his Republican Party has failed in efforts to repeal the health reforms.