"Barack Obama is being called as the winner of this 'First in South' Democratic primary," Al Jazeera's Kimberly Halkett, reporting from Columbia in South Carolina, said.
In his victory speech, Obama said "there are real differences between the candidates."
"We are looking for more than just a change of party in the White House. We are looking to fundamentally change the status quo in Washington."
"It's a status quo that extends beyond a particular party, and that status quo is fighting back with everything its got, with the same old tactics that divide and distract us from solving the problems people face."
Obama sought to downplay any racial divide between voters in the state despite 81 per cent of black voters picking him while 17 per cent chose Clinton.
"It is not about black versus white. This election is about the past versus the future," he said.
However Kathleen Kendall, from the University of Maryland, told Al Jazeera "the question will be whether he [Obama] can now carry this victory into other states where there is not a majority of African-American voters."
Regardless of the focus on race, a poll conducted by the Associated Press showed half of Democratic voters saying the economy was the most important issue, while about one quarter picked health care and only one in five said it was the war in Iraq.
The victory gives the Illinois senator a boost ahead of "Super Tuesday", on February 5 when nearly half the states will pick Republican and Democratic candidates for the November election.
Clinton campaign continues
Meanwhile, Clinton acknowledged her defeat in South Carolina and vowed to take her campaign nationwide.
"I have called Senator Obama to congratulate him and wish him well," a statement issued by her campaign team said.
"We now turn our attention to the millions of Americans who will make their voices heard in Florida and the 22 states as well as American Samoa who will vote on February 5."