Joe Biden has hailed a congressional deal that represents the biggest single climate investment in US history – and hands him a badly needed political victory.

In a stunning reversal, Senate Democrats on Wednesday announced an expansive $739bn package that had eluded them for months addressing healthcare and the climate crisis, raising taxes on high earners and corporations and reducing federal debt.

The president said on Thursday: “This bill would be the most signification legislation in history to tackle the climate crisis and improve our energy security right away.”

Biden, who has faced soaring gas prices that have helped drive inflation to 40-year highs, said experts agreed that the bill would help address the problem and urged Congress to pass it.

“With this legislation, we’re facing up to some of our biggest problems and we’re taking a giant step forward as a nation … This bill is far from perfect, it’s a compromise, but that’s often how progress is made: by compromises.”

The deal, struck between the majority leader, Chuck Schumer, and longtime holdout Senator Joe Manchin of West Virginia, would invest $369bn over the decade in climate change-fighting strategies including investments in renewable energy production and tax rebates for consumers to buy new or used electric vehicles.

It includes $60bn for a clean energy manufacturing tax credit and $30bn for a production tax credit for wind and solar, seen as ways to boost and support the industries that can help curb the country’s dependence on fossil fuels. At Manchin’s insistence, $306bn is earmarked for debt reduction.

The package, called the Inflation Reduction Act, would cut US emissions 40% by 2030, a summary released by Schumer’s office said, and earned praise from clean-energy advocates and Democratic party elders.

Barack Obama, the former president, tweeted: “I’m grateful to President Biden and those in Congress – Democrat or Republican – who are working to deliver for the American people. Progress doesn’t always happen all at once, but it does happen – and this is what it looks like.”

Al Gore, an ex-vice-president whose 2006 documentary film An Inconvenient Truth helped raise awareness of the climate crisis, wrote on Twitter: “The Inflation Reduction Act has the potential to be a historic turning point. It represents the single largest investment in climate solutions & environmental justice in US history. Decades of tireless work by climate advocates across the country led to this moment.”

Another component of the package would allow Medicare, the government-run healthcare programme for the elderly and disabled, to negotiate prescription drug prices with pharmaceutical companies, saving the federal government $288bn over the 10-year budget window.

The Manchin-Schumer measure is substantially smaller than the $3.5tn Build Back Better spending bill that Biden asked Democrats to push through Congress last year.

But it gave him a political win when he most needed it. His administration has been assailed by a cascade of setbacks including the war in Ukraine, a series of conservative supreme court rulings, soaring inflation and, on Thursday, a GDP report that showed gross domestic product shrank for the second consecutive quarter this year.

This backdrop has left the president struggling with low job approval ratings and ebbing support from his own party. A CNN poll this week found that 75% of Democratic and Democratic-leaning voters want the party to nominate someone other than him in the 2024 election.

But the surprise Senate deal, coming on the same day that the Senate passed legislation boosting domestic production of computer chips and Biden completed his recovery from a coronavirus infection, gave a glimpse of light at the end of the tunnel.

John Zogby, an author and pollster, said there had already been signs that the president’s approval rating was improving. “This could very well be the critical win. First of all, it’s coming in the context of a few other wins: the manufacturing bill is another and, at the same time, there’s a sense the gas prices are going down. It’s an important piece of Build Back Better and it looks like it can happen. This could lift expectations.”

The deal is a boost for Democrats ahead of midterm elections on 8 November that will determine control of Congress. Zogby added: “Democrats can go back to voters and say, ‘Look, we accomplished something. It may not have been what you wanted but here’s our first real accomplishment on climate change.’”

Jonathan Kott, a former communications director for Manchin, told the MSNBC network: “Democrats really need to seize on this moment and tell this story, scream it at the top of their lungs. If this was Donald Trump, he’d be out there having press conferences in the Rose Garden all over the country. We should be doing the same thing.”

The deal marked a dramatic U-turn by Manchin, a conservative Democrat and the swing vote in the evenly divided Senate, who has received more donations from oil and gas companies than any other legislator in recent years. Earlier this month he drew fierce condemnation from climate activists for apparently scuttling Biden’s spending plans, claiming that he was concerned about inflation.

On Wednesday Manchin, who aimed to preserve federal oil and gas leasing projects and natural gas pipelines during months of talks, said the bill will invest in hydrogen, nuclear power, renewables, fossil fuels and energy storage. “This bill does not arbitrarily shut off our abundant fossil fuels.”

Democrats hope to pass the bill by a simple majority in the Senate. Schumer told colleagues on Thursday that they now have an opportunity to achieve two “hugely important” priorities on healthcare and climate change, the Associated Press reported, but warned that final passage will be hard.

It remains unclear whether Kyrsten Sinema of Arizona, who like Manchin has been a perennial thorn in Biden’s side, will vote in favour. There is also sure to be staunch opposition from Republicans.

Senator John Cornyn, a Texas Republican, said in a statement the legislation would be “devastating to American families and small businesses. Raising taxes on job creators, crushing energy producers with new regulations, and stifling innovators looking for new cures will only make this recession worse, not better.”

The bill must also pass the House of Representatives, where Democrats have a razor-thin majority, and be signed by Biden.