Changes in the threat system were part of a wide-ranging $34 billion bill, approved by the House in a 424-4 vote that would set Homeland Security priorities for next year.
It also would require the hiring of 2000 border patrol agents - far above the 210 requested by President George Bush - and bolster efforts to remove illegal immigrants from the United States.
Additionally, the bill would direct Homeland Security to give more intelligence about nuclear and biological weapons to state, local and private-sector officials.
It also would provide $11 million to help research companies to deploy anti-terror technology more quickly without the fear of facing product liability lawsuits.
"We've had to make hard choices and we've had to set priorities," Representative Christopher Cox of California, chairman of the House Homeland Security Committee, said.
"As a result, we have not funded every initiative to protect against every conceivable mean by which a terrorist might mount an attack."
Cox said: "But what we have done is base our funding decisions on the best intelligence available - on terrorist capabilities and intentions, and on the actual risk of a terrorist attack."
Cox (L) said funding would be used
according to intelligence sources
The White House issued a statement of tepid support for the legislation, saying it has serious concerns that parts of the bill could "hinder the department's ability to implement its various missions".
The Senate is working on its own version of a Homeland Security bill, but a Republican spokeswoman could not offer a deadline for when it might be finished.
Vague colour scheme
The colour-coded system, introduced in March 2002, has been widely criticised for being too vague to help the public understand what kind of threat it faces. Under the House legislation, Homeland Security would have to give specific information about an attack's target and how to respond to the threat.
It would also make the colour system optional.
Ideally, Republican aides said, alerts would be issued to geographic regions or industry, similar to when threat levels were raised to orange or high risk, at financial sectors in New York City, Washington and northern New Jersey last August.
"The system has provided more material for late-night comedians than effective information on threats for the public"
Homeland Security Secretary Michael Chertoff is considering changes to the system, which could be announced as soon as next month. The national alert level stands at yellow - meaning elevated risk.
"The system has provided more material for late-night comedians than effective information on threats for the public," said Representative Bennie Thompson, a Mississippi Democrat.
Though Democrats said the bill did not go far enough to shore up vulnerabilities at airports and chemical plants, Thompson called it a "good start".
The House plan also would change the "30-minute rule" that prohibits airplane passengers from leaving their seats within half an hour flying in or out of Reagan National Airport in Washington.
The amendment would reduce the time to 15 minutes. The ban has been in place since the 11 September, 2001, terror attacks.