We present a new method, GRASS, for improving an initial annotation of de novo transcriptomes. GRASS makes the shared-sequence relationships between assembled contigs explicit in the form of a graph, and applies an algorithm that performs label propagation to transfer annotations between related contigs and modifies the graph topology iteratively. We demonstrate that GRASS increases the completeness and accuracy of the initial annotation, allows for improved differential analysis, and is very efficient, typically taking 10s of minutes.