Does anyone know a good source (website) which lists japanese books that are categorized by kanji grade level (Grade 1 , 2 , 3 -highschool etc)

Danke

Junior highschool students can read any kanji with kanji dictionary or imagination from its left-hand radical or body, and so normally Junior highschool and highschool students are recommended to read any sort of book.

links to 100 recommended books by several j- or highschool.
http://www.jttk.zaq.ne.jp/baabo903/files/link.htm

If you can read/understand kanji taught in primary school you can read latery books, or if you can understand meaning from hiragana following webpage lists and publishes books which have outdated or invalid copyright.
http://www.aozora.gr.jp/

hopefully it can help you.