The Government is considering another public private partnership deal to build a new prison unit because of a swelling prison population.
Corrections Minister Judith Collins says there will be a new unit at Waikeria Prison in Waikato, and the Government will ask a private company to build it.
It will be operated by Corrections, but built and maintained by a public private partnership.
Private prisoner operator Serco was recently stripped of its Mt Eden contract over a fight club scandal.
Corrections Minister Judith Collins says there will be 1800 more beds, at a cost of $1 billion. Most of this will be achieved by double-bunking.
Finance Minister Bill English has also indicated the Government is looking at building a new prison.
"We have to respond through new investment or we will create unacceptable safety risks for staff, prisoners and the public, and be less effective at rehabilitating prisoners," Ms Collins said.
There will be 80 new beds created by double bunking at the Northland Region Corrections Facility, and a new block built at Mount Eden adding another 245 beds.
Ms Collins says most demand for beds is expected to come from the upper North Island.
"Being close to the areas of need reduces the costs of operating the prison network and helps keep prisoners close to family and support networks," she said.
She also pledged to increase access to rehabilitation and re-integration programmes.