The Spaniard, who will not drive in the Monaco Grand Prix in order to compete in the famous American race, finished with a four-lap average of 231.300mph.
The McLaren driver impressed on the first day of qualifying on Saturday but was forced to change engines as a precaution ahead of Sunday's battle for pole position.
Alonso, driving the Honda 29 around the Indianapolis Motor Speedway, averaged 230.034mph on Saturday and the last-minute changes did not seem to have an impact.
The 35-year-old, who has been beset by Honda engine problems in Formula One this season, said: "I think today the car was better than yesterday, there was better balance.
"The guys did an amazing job. They changed the engine in an hour and a half.
"This is the biggest race in the world - I felt that the first time I came here, but the place was empty.
"Now, seeing all the fans, it is even more amazing and I'm looking forward to next Sunday."
The two-time Formula One champion qualified as the fastest rookie and believes there is more to come from the car come race day.
Alonso told BT Sport: "The engine was hitting the brakes out of the corners and I think I lost a bit of speed onto the straight."
Scott Dixon was the fastest driver of the day, with a 232.164mph average, ahead of Ed Carpenter and Alexander Rossi, who will start from second and third respectively.
Briton Max Chilton is in 15th position after averaging 230.068mph, while compatriots Jack Harvey and Pippa Mann will start from 27th and 28th respectively.
Mann, the first British woman to compete in the Indy 500, said: "I was happy with the car straight away. I feel like I've got a good race car underneath me."
