Ali Saleh Kahlah Al Marri has been in custody since 2001. The government's move puts him under the control of the Defense Department, without the rights afforded defendants in the civilian criminal justice system.
Al Marri is accused of lying to the FBI, and also of credit card fraud.
He's only the third person to be named publicly as an enemy combatant since the September eleventh attacks. The others are both U-S citizens -- accused dirty bomb plotter Jose Padilla and Yaser Esam Hamdi, a Louisiana native captured on the battlefield in Afghanistan.
A Justice Department official says Al Marri was "positively identified" as being part of a planned second wave of al Qaeda terrorist attacks by an "al Qaeda detainee in a position to know."
Officials would not identify that person, but have said that senior al Qaeda operative Khalid Shaikh Mohammed has provided a wealth of information about the network's presence in the United States.
Al-Marri's designation as an enemy combatant came after prosecutors Monday dropped the criminal charges against him.
Alice Fisher, deputy assistant attorney general for the Justice Department's criminal division, said the decision was made not because that case was weak but because it was the best way to deter future terrorist attacks.
"We are confident we would have prevailed on the criminal charges," Fisher said. "However, setting the criminal charges aside is in the best interests of our national security."
Iyman Faris, the Ohio truck driver whose guilty plea on charges of aiding al Qaeda was unsealed last week, was allegedly one of Mohammed's operatives.
According to a statement on the now-defunct criminal indictment by the U.S. attorney for central Illinois, federal agents claim Al-Marri lied to them twice.
In an October 2, 2001 interview, he told them he had arrived in the United States on September 10, 2001, and that it was his first visit since 1991. In fact, he had been in the country in 2000, the feds say.
In a December 11, 2001 interview, he denied calling a telephone number in the United Arab Emirates that the feds say he had, in fact, dialed.
The number belongs to Mustafa Ahmed al-Hawsawi, an unindicted co-conspirator in the trial of suspected "20th hijacker" Zacarias Moussaoui.
Prosecutors say Hawsawi provided financial backing to the Sept. 11 hijackers.
Al-Marri was arrested the day after the second interview and held as a material witness.
The feds allege Al-Marri obtained a bank account under a false name, rented a motel room under a false name to create a mailing address and formed a fake company with the motel as its address. They also claim he used a fake Social Security number to open three bank accounts.
He had 15 or more false credit card numbers on him at the time of his December 2002 interview, the U.S. attorney's office contends.
If convicted on those civilian charges, Al-Marri would have faced 15 years for identity fraud, 30 years for lying to the banks, five years for lying to federal agents, and 10 years for credit card fraud. Total fines for the crimes could have totaled $1.75 million.
More than 600 men captured in Afghanistan are held as "unlawful combatants" on Guantanamo Bay, and a federal court has ruled they have no right to counsel.
The two other enemy combatants on U.S. territory, Jose Padilla and Yaser Esam Hamdi, are U.S. citizens.
Like Al-Marri, Padilla was initially in the civilian legal system before being transferred into the military custody, reports CBS News legal analyst Andrew Cohen. Padilla was arrested in Chicago in May 2002 and transferred to military custody a month later, suspected of discussing a "dirty bomb" plot with al Qaeda.
Hamdi was arrested on the battlefield in Afghanistan, fighting alongside the Taliban.
Civil liberties advocates have challenged the government's right to detain people, especially U.S. citizens, without charging them or providing them with a chance to challenge the legality of their detention.
The Justice Department contends that it is customary in times of war to allow the president to detain people without trial.
Padilla won the right to a lawyer in a federal district court ruling in March, but the government has appealed. A federal appeals court has sided with the government in the Hamdi case.
The administration has also begun moving toward holding military tribunals for terrorism suspects.