He was responding to a question about former White House aide Rob Porter, who allegedly beat his wife, and also about the president's son-in-law, Jared Kushner. Kushner reportedly has only the same interim security clearance as Porter.
Mr Coats was one of several spymasters who gave evidence on Tuesday to the Senate Intelligence Committee about global threats facing the US.
"Sometimes it is necessary to have some type of preliminary clearance in order to fill a slot," the US director of national intelligence said in response to a question from Democratic New Mexico Senator Martin Heinrich.
"But if that is the case the access has to be limited in terms of the kind of information they can be in a position to receive."
He told the Senate Intelligence Committee on Tuesday there is currently a government-wide backlog of 700,000 security clearance applications.
"The process is broken, it needs to be reformed. It's not evolution, it's revolution," he said.
White House spokeswoman Sarah Sanders would not confirm the number of staff members who are operating with interim clearances.
"We are following a process that has been used by previous administrations and we would rely on the law enforcement and intelligence communities to determine if that process should be changed," Mrs Sanders said during Tuesday's news briefing.
Mr Coats' testimony comes amid controversy over the interim security clearance granted to Mr Porter, the former White House staff secretary who was forced out last week after two ex-wives told US media he was emotionally and physically abusive to them.
In Tuesday's hearing, FBI director Christopher Wray appeared to contradict the White House's account of when it knew about the allegations against Porter, which he denies.
White House Chief of Staff John Kelly (L) has come under fire for defending Rob Porter (R)
Mrs Sanders later disputed the FBI timeline, saying that the background check had not yet been completed.
Mr Wray also said the FBI delivered the final results in January of its background investigation into Porter. But the White House said last week that Porter's background investigation was "ongoing" at the time he quit. The White House is also facing questions about presidential adviser Mr Kushner's access to classified material.
37-year-old Kushner is reportedly operating on an interim security clearance
Kushner is one of dozens of White House employees still awaiting permanent clearance, according to the Washington Post.
His lawyer, Abbe Lowell, said the 37-year-old's application is taking longer than usual "because of the extent of his holdings, travels and lengthy submissions", according to the newspaper.
The wealthy New York real estate developer has had to refile the national security questionnaire required of all prospective White House employees after making a number of omissions.
Last October, the head of the National Background Investigations Bureau told Congress he has "never seen that level of mistakes" on any security clearance application.
So who knows who is walking out of the White House with top secret documents or codes in their lunch pails, for sale to the highest bidder?? No one seems to take the matter too seriously. But by all means build a concrete wall across the country to keep Mexicans out so they don't rape Americans. Huh??