The controversial decision, which was promised by Trump during his 2016 campaign and appeals to his right-wing base, could lead to massive protests in the Middle East and elsewhere, Arab leaders warned.
"It's long overdue," Trump told reporters at a Cabinet meeting at the White House.
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"The President would say that the US government recognises that Jerusalem is the capital of Israel. He views this as recognition of historic reality.
"Jerusalem has been capital of Jewish people since ancient times and modern reality that it has been the seat of government, important ministries, its legislature, the Supreme court," a senior administration official told reporters on the eve of Trump's much anticipated announcement on Jerusalem.
Noting that finding appropriate land and construction of a new embassy would take at least a couple of years, officials said Trump would continue to give waiver as required by the Congress - for not moving its diplomatic mission to Jerusalem.
In taking this action, another senior administration official said that Trump will fulfil a major campaign promise that has been made by a number of previous presidential candidates.
The international community considers east Jerusalem illegally occupied by Israel and most countries have their embassies in Tel Aviv.
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