In the latest change to the Justice Sector and Offender Learning, nine new prisons will open in England and Wales - five by 2020 - after the scheduled closure of Victorian jails.
About 10,000 inmates will transfer to the new institutions in an attempt to save an estimated £80m a year, with the move forming part of Chancellor George Osborne's spending review due on 25 November. It will make the country's prison system "fit for purpose in the 21st Century", the Treasury said.
Government sources say the prison building programme will cost more than £1bn. In addition to the nine new jails, a new super prison is currently being built in Wrexham and expansions are taking place at HMP Stocken, in Rutland, and HMP Rye Hill, in Warwickshire.
Crucially, over 3,000 new homes could be built on the city centre sites of the old jails, the government said.
Grade II-listed HMP Reading, built in 1844 and closed in 2013, will be first to be sold, according to the Treasury announcement. However, this comes just a month after Reading Borough Council was told by the Ministry of Justice that the prison would be retained "in case of contingencies". The other sites being sold have not been revealed but there has been speculation they might include Pentonville and Brixton prisons, whose Offender Learning teams are run by Novus, in London.
The feasibility of the government's plans depends largely on the size of the prison population, which is notoriously hard to predict. There's no sign that the population is falling - it's currently 85,884 although it's not rising as fast as predicted a year ago.
As for the closures, it's been long speculated that Pentonville in north London, which was heavily criticised by inspectors, might be closed. Other possible London candidates include Wormwood Scrubs, Brixton and Wandsworth. Leeds, Manchester and Liverpool are old jails which are known to be very expensive to run.
Dartmoor Prison has already been earmarked for closure. As well as Reading, several jails are currently unused and could be sold off, including Dover, which was until recently an immigration removal centre, and Downview Prison, in Surrey, which was a women's prison.
Mr Osborne said: "This spending review is about reform as much as it is about making savings. One important step will be to modernise the prison estate. So many of our jails are relics from Victorian times on prime real estate in our inner cities.
"So we are going to reform the infrastructure of our prison system, building new institutions which are modern, suitable and rehabilitative.
"And we will close old, outdated prisons in city centres, and sell the sites to build thousands of much-needed new homes."
In July, chief inspector of prisons Nick Hardwick said in his annual report that jails in England and Wales were in their worst state for 10 years, with increasing violence. He said the use of legal highs was fuelling violence, while inmate deaths and self-harming were rising, and staff attacks were also up.
The director of the Prison Reform Trust, Juliet Lyon, says the plans do not go far enough:
"Prison reform isn't just about building new prisons. There are other solutions and that's what we're waiting to hear. Is Michael Gove prepared to... look at the sentencing framework, for a start, to look at why sentence lengths have increased dramatically.
"Whether he's prepared to make a proper investment in mental health care, treatment for drug addiction, dealing with binge drinking; the things that are driving crime at the moment."