US President Barack Obama hit out at critics and extremists during his final State of the Union address on Tuesday and aimed to douse fears over the country's economy and security. 

"The United States of America is the most powerful nation on Earth," Obama said. "No nation dares to attack us or our allies because they know that's the path to ruin." 

Obama also hit out at Republican presidential candidate Donald Trump, without directly naming him, and his anti-Muslim rants. 

"When politicians insult Muslims, when a mosque is vandalised, or a kid bullied, that doesn't make us safer. It's just wrong. It diminishes us in the eyes of the world. It makes it harder to achieve our goals. And it betrays who we are as a country," Obama said. 

Citing the widening divide among political parties as one of his "few" regrets during his presidency of eight years, Obama said that "the rancour and suspicion between the parties has gotten worse instead of better."

Overall, the US President addressed the key points about the US economy, threats from terrorism, foreign policy, and the need to change the state of American politics.  

On US economy: 

Obama accused those claiming that the US economy is on a decline of "peddling fiction". He said that the US saw its "strongest two years of job growth since the '90s" with more than 14 million jobs created. He also said that the US auto industry had "its best year ever". 

"The United States of America, right now, has the strongest, most durable economy in the world. We are in the middle of the longest streak of private-sector job creation in history," Obama said. 

The US President, however, highlighted the challenges in the face of technology replacing jobs and the lopsided concentration of wealth. 

On Terrorism: 

Obama acknowledged that terror groups such as the al Qaeda and the Islamic State posed a "direct threat" for Americans, but warned against falling to the terrroists' propaganda. He also called for the Congress to authorise the use of military force against Isis. 

"I know this is a dangerous time.  Both al Qaeda and now ISIL pose a direct threat to our people, because in today's world, even a handful of terrorists who place no value on human life, including their own, can do a lot of damage," he said, using an acronym for the Islamic State. 

"But as we focus on destroying ISIL, over-the-top claims that this is World War III just play into their hands. They do not threaten our national existence. That's the story ISIL wants to tell; that's the kind of propaganda they use to recruit," the president said. 

Obama said that the US-led coalition of over 60 nations has carried out nearly 10,000 strikes against Isis since last year, which he said has killed several of the group's leaders and has cut of its financing. 

On restoring relations with Iran, Cuba:

Obama said that the US had warded off a war by preventing a nuclear-armed Iran. 

"As we speak, Iran has rolled back its nuclear program, shipped out its uranium stockpile," he said. 

"Fifty years of isolating Cuba had failed to promote democracy, setting us back in Latin America. That's why we restored diplomatic relations, opened the door to travel and commerce, and positioned ourselves to improve the lives of the Cuban people," he said on US-Cuba relations. 

On US politics: 

Obama cited the increasing hostility between political parties in the country as one of his "few regrets" and called for a change in the system of voting and the influence of money in American politics. 

"It's one of the few regrets of my presidency – that the rancour and suspicion between the parties has gotten worse instead of better.  And if we want a better politics, it's not enough to just change a Congressman or a Senator or even a President; we have to change the system to reflect our better selves," Obama said. 

"We have to end the practice of drawing our congressional districts so that politicians can pick their voters...  We have to reduce the influence of money in our politics, so that a handful of families and hidden interests can't bankroll our elections... We've got to make voting easier, not harder, and modernise it for the way we live now," he said.