Treasury department officials said they used broad subpoenas to collect the financial records from an international system known as "Swift."
Swift, or the Society for Worldwide Interbank Financial Telecommunication, is a cooperative based in Belgium that handles financial message traffic from 7,800 financial institutions in more than 200 countries
Stuart Levey, Treasury's undersecretary for terrorism and financial intelligence, called the subpoenas "a legal and proper use of our authorities" after the terror attacks of September 11, 2001.
Deputy White House press secretary, Dana Perino, said on Thursday evening: "Since immediately following 9/11, the American government has taken every legal measure to prevent another attack on our country.
"One of the most important tools in the fight against terror is our ability to choke off funds for the terrorists."
The White House and Treasury department issued statements about the secret subpoenas after The New York Times, the Los Angeles Times and The Wall Street Journal posted stories about the programme on their websites.
Under the programme, US counterterrorism analysts could query Swift's massive financial database looking for information on activities by suspected terrorists, a Treasury department official said.
They would do so by plugging in a name or names, the official said. The programme involved the CIA and the Treasury department.
Snow said the programme
was limited (File)
Swift service mostly captures information on wire transfers and other methods of moving money in and out of the United States.
The service generally does not detect private, individual transactions in the United States, such as withdrawals from an ATM or bank deposits.
The administration defended the use of the programme, saying it plays a vital role in its efforts to identify terrorist financiers.
"Our subpoena of terrorist-related records from Swift has provided us with a unique and powerful window into the operations of terrorist networks," Levey said.
While confirming the newspapers reports, Levey and Perino expressed concern that the disclosure of the programme could undermine efforts to track terrorism-related activities.
"We know the terrorists pay attention to our strategy to fight them, and now have another piece of the puzzle of how we are fighting them," Perino said.
"We also know they adapt their methods, which increases the challenge to our intelligence and law enforcement officials."
Swift acknowledged that it complied with the government's subpoenas but said the government's requests were for limited sets of data.
The group said it negotiated with the treasury over the scope and oversight of the subpoenas.
"Through this process, Swift received significant protections and assurances as to the purpose, confidentiality, oversight and control of the limited sets of data produced under the subpoenas," Swift said in a statement. "Independent audit controls provide additional assurance that these protections are fully complied with."
Treasury secretary John Snow suggested the programme was limited and was not an effort to snoop on law-abiding Americans.
"It is not a data-mining or trolling through the private financial records of Americans," Snow said in a statement. "It is not a fishing expedition but rather a sharp harpoon aimed at the heart of terrorist activity."
Disclosure of the programme follows controversy over Bush's directive ordering the National Security Agency to monitor, without court approval, the calls and e-mails of Americans when one party is overseas and terrorism is suspected.
That programme, which also began shortly after 9/11, was disclosed by The New York Times.
"The president is concerned that once again The New York Times has chosen to expose a classified program that is working to protect our citizens," Perino said.
Asked not to publish
The administration has not disclosed the terror-tracking programme but has spoken publicly about its efforts to disrupt terror fundraising efforts. The Bush administration sought to quash the story, arguing that it would destroy a useful intelligence tool.
The New York Times and the Los Angeles Times quoted their editors as defending their decision to publish despite being asked by the Bush administration to withhold publication.
Bill Keller, The New York Times' executive editor, said it considered the administration's arguments but in the end decided to publish. "We remain convinced that the administration's extraordinary access to this vast repository of international financial data, however carefully targeted use it may be, is a matter of public interest."
Dean Baquet, editor of the Los Angeles Times, said: "We weighed the government's arguments carefully, but in the end we determined that it was in the public interest to publish information about the extraordinary reach of this program. It is part of the continuing national debate over the aggressive measures employed by the government."
The Wall Street Journal received no request to withhold the story, said Daniel Hertzberg, a senior deputy managing editor. He declined to comment further.