The Democrat-dominated Senate and Republican-controlled House of Representatives refused to back down in a clash over President Barack Obama's controversial healthcare law, known as Obamacare.
The deadlock means non-essential services, including some of America's most famous tourist attractions, will be forced to close, while hundreds of thousands of workers face the prospect of unpaid leave.
It is the first US shutdown in 17 years, with analysts concerned about its potential impact on Wall Street and other global markets.
In a frank address to the nation as last-ditch efforts to avoid a shutdown continued, Mr Obama warned such an outcome would have a "very real economic impact, right away".
"The idea of putting progress at risk is the height of irresponsibility," he said.
"One faction, of one party, in one House of Congress, in one branch of government, does not get to shut down government just to refight the results of an election."
He added: "Vital services that seniors and veterans, women and children, businesses and our economy depend on will be hamstrung.
"Tourists will find every one of our national parks and monuments ... immediately closed and of course the communities and small businesses that rely on these national treasures for their livelihoods will be out of customers and out of luck."
New York's Statue of Liberty and the National Zoo in Washington, as well as Yellowstone and other national parks, are among the tourist attractions the shutdown will affect.
The Internal Revenue Service will suspend audits and taxpayer services, programmes for children will be halted and up to 800,000 government employees will be forced to take temporary leave, possibly without pay.
The military's 1.4 million active duty personnel will remain on duty and Mr Obama signed a law on Monday to ensure they would receive their pay on time .
Mr Obama's healthcare law was passed by Congress and signed into law in 2010, despite opposition by the Republican Party, especially Tea Party conservatives.
However, the scheme, which aims to provide greater access to affordable health insurance for poorer sections of society, has yet to be funded.
In March, the Republicans and Democrats failed to agree on a 2013/14 budget bill that would have funded Obamacare, although they reached a compromise that gave both sides an extra six months - until October 1 - to continue negotiations.
The Dow Jones index closed 129 points down on deadline day, a fall of nearly 1%.
In Japan, the Nikkei closed 2% lower, while in Britain, the FTSE 100 was almost 1% down.
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