The Biden administration estimates the proclamation could affect thousands of individuals convicted of consensual sexual conduct and who might be eligible for a pardon.
"Our nation's service members stand on the front lines of freedom and risk their lives in order to defend our country," Biden said in a statement.
"Despite their courage and great sacrifice, thousands of LGBTQI service members were forced out of the military because of their sexual orientation or gender identity."
The affected individuals could apply for proof that they might be eligible, and if they received a certificate of pardon, they could then apply to have their discharge characterisation changed, senior administration officials said.
The administration was considering ways to contact individuals who might be eligible for the pardon, the officials said.
In late 2013, the US Senate passed a measure that included a repeal of a military ban on consensual sex, defined in Article 125 of the Uniform Code of Military Justice as "unnatural carnal copulation", according to the American Civil Liberties Union.
The Senate sent the measure to former president Barack Obama to sign.
Biden served under Obama as vice-president.
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