Political leaders in the United States have reached an agreement to raise the country's debt ceiling and stop it from defaulting.

Obama - Reuters

President Barack Obama announced the last-minute deal to raise the borrowing limit by about $2 trillion and urged lawmakers to "do the right thing" and approve the proposed agreement to avert a catastrophic default.

Laying out the endgame in the crisis just two days before a deadline to lift the debt ceiling, the White House and both Republican and Democrat leaders in Congress said the compromise would cut about $2.4tr from the deficit over the next ten years.

Both the Senate and House of Representatives will now vote on the bill, but while Senate approval is likely, the agreement's fate may be less certain in the House.

Read more: A macho game of chicken over America's debt ceiling?

After weeks of acrimonious impasse and with the final outcome hinging on support from unenthusiastic lawmakers, Mr Obama pressured both sides to carry to fruition the accord hammered out behind closed doors.

"The leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default - a default that would have had a devastating effect on our economy," Mr Obama said.

"I want to urge members of both parties to do the right thing and support this deal with your votes over the next few days," he added.

The plan involves a two-step process for reducing the deficit. The first phase calls for about $900 billion in spending cuts over the next decade and the next $1.5tr in savings must be found by a special congressional committee. Congress must act by 23 December under the deal.