The bronze statue, inspired by a childhood photograph of a 10-year-old Obama in shorts with a butterfly perched on an outstretched thumb, was put up last December.
But it had been targeted by critics ever since - and will now be moved to a nearby school which the president attended as a child.
Detractors have argued that an Indonesian hero should have been honoured instead, noting that Obama still could pursue policies that hurt Indonesia's interests.
Obama, whose American mother married an Indonesian after divorcing his Kenyan father, went to school in the capital from 1967 to 1971 and is regarded fondly by most Indonesians.
Edi Kusyanto, a teacher at the affluent government school Obama attended, said the 1.1 metre statue would be standing in the school grounds by the time the president visits Jakarta next month.
"There is no controversy about the statue being here. Everyone at the school welcomes it," Kusyanto said.
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The statue was erected with private funds raised by the Jakarta-based nonprofit group Friends of Obama Foundation, but Jakarta Governor Fauzi Bowo is paying for its relocation.
The statue was erected with private funds raised by the Jakarta-based nonprofit group Friends of Obama Foundation, but Jakarta Governor Fauzi Bowo is paying for its relocation.
Ron Mullers, an American living in Jakarta who came up with the idea for the statue and raised money for it, declined to say whether he thought moving it was an overreaction.
"It's a beautiful statue and it had become a tourist attraction," Mullers said.
"My feeling is that the park is a place where more Indonesian people can see it," he said.
Still, he said he was happy that the statue might inspire the school's students to follow their dreams.
Heru Nugroho, leader of a Facebook campaign to remove the statue, welcomed the move but added that the decision had taken too long.
He said he would now drop court action seeking the statue's removal.
Indonesia is home to the world's largest Muslim population and many Indonesians believe Obama will improve relations with the West.
