The White House announced Obama had pardoned two people and commuted sentences -- ranging from cocaine to firearm possession -- of 95 others in an end-of-year act of executive power.
His actions bring total commutations to 184, which the White House said is "more than the last five presidents combined."
"I believe in your ability to prove the doubters wrong, and change your life for the better," Obama said in a letter to those who received clemency.
Obama wants to reform a range of laws that cause the United States to have among the world's highest incarceration rates and that put a disproportionate number of black and Hispanic Americans behind bars.
Laws that punish crack possession much more severely than possession of cocaine, are an often cited example of rules that result in racial bias in jails.
Obama's pardons on Friday are by far the largest number he has issued on one day.
It could be seen as a statement of intent. Obama's final year in office is expected to bring a concerted White House push for broader justice reform.
It appears to be one of the rare issues on which a sufficient number Republicans and Democrats in Congress can agree.
"There is a confluence of interests. I believe the time is ripe for this issue," said a senior administration official. "There is a process and it is on track.
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