This paper investigates the path-following control problem with obstacle avoidance of autonomous surface vehicles in the presence of actuator faults, uncertainty and external disturbances. Autonomous surface vehicles inevitably suffer from actuator faults in complex sea environments, which may cause existing obstacle avoidance strategies to fail. To reduce the influence of actuator faults, an improved artificial potential function is constructed by introducing the lower bound of actuator efficiency factors. The nonlinear state observer, which only depends on measurable position information of the autonomous surface vehicle, is used to address uncertainties and external disturbances. By using a backstepping technique and adaptive mechanism, a path-following control strategy with obstacle avoidance and fault tolerance is designed which can ensure that the tracking errors converge to a small neighborhood of zero. Compared with existing results, the proposed control strategy has the capability of obstacle avoidance and fault tolerance simultaneously. Finally, the comparison results through simulations are given to verify the effectiveness of the proposed method.