Increasing the severity of sentences for lower-level terrorism offences risks making the perpetrators more dangerous after they are released, the Parole Board has said.
Pointing to concerns about extremism in prisons, the body argued de-radicalisation programmes for less serious offenders are more likely to be successful in the community than in jail.
The Parole Board, which assesses whether serving prisoners in England and Wales are safe to be released, responded to a consultation on new sentencing proposals drawn up last year amid a shift in the terror threat.
The board's response was referenced in a report released by the Commons Justice Committee on Tuesday.
It said the board "raises concerns about radicalisation in prisons", adding: "In the board's assessment, there are concerns that increasing the penalties for less serious offenders will result in them becoming more likely to commit terrorist acts when they are released."
The report does not specify terror-related crimes that could fall under the "less serious" heading.
The committee quoted the board as observing: "Most of the rest of Europe is devising interventions in the community to de-radicalise less serious offenders.
"These programmes are more likely to be successful in the community than in prison where the influence of extremist inmates is likely to be stronger."
In October the Sentencing Council published a draft of the first comprehensive guidance for a host of terrorism offences in England and Wales.
The guidelines are designed to equip courts for the "new category" of terrorists, whose plans escalate rapidly and involve attacks using cars or knives.
The main proposed change applies to offences under section 5 of the Terrorism Act 2006, which covers the preparation of terrorism.
The new guidelines will keep the same maximum sentence of life with a minimum term of 40 years.
But the council is proposing that the sentencing range for the lowest level preparation of crimes is set at three to six years - compared with 21 months to five years under existing guidance.
Cases that could fall into this category include those where preparations are not well developed, or where the person offers a small amount of assistance to others.
Other crimes covered by the guidelines include encouragement of terrorism, terror fundraising, and supporting a banned organisation.
In these cases the draft proposals are expected to result in some sentences which are more severe than previously but the Sentencing Council anticipates the need for additional prison places to be minimal.
Separately, the Government is examining whether the length of custodial sentences for terror-related offences are sufficient as part of a major review launched last year as Britain was hit by a wave of attacks.
Ministers have already announced a rise in the statutory maximum sentence for collecting terrorist information from 10 to 15 years to clamp down on offenders who repeatedly view illegal material on the internet.
There were 213 individuals in custody in Britain after being charged with or convicted of terrorism-related offences at the end of September, a rise of more than a quarter on the previous year.
Separate figures suggest that authorities are managing more than 1,000 inmates identified as extremist or vulnerable to extremism at any one time.
Last year the Ministry of Justice launched three specialist units to hold up to 28 prisoners after a review concluded Islamist extremism was a growing problem in jails.
Justice Committee chairman Bob Neill urged the Sentencing Council to carefully consider responses to its consultation.
He added: "Terrorism is a very serious offence and it is right that the guideline reflects public concerns and the grave threats that it poses to society."
The Sentencing Council, which will publish final guidelines next month, said it considers all responses received during the consultation period.