Prime Minister Gordon Brown has confirmed that he personally intervened to block plans to increase prisoners' pay rates by 37.5% - their first rise for more than a decade.
Mr Brown said any changes in pay should come as part of a new contract being drawn up which will reward inmates for good behaviour behind bars and participation in programmes designed to prevent reoffending, such as drug treatment.
The Prime Minister overruled proposals put to him on Tuesday by the Prison Service Management Board to increase the minimum pay rate for an offender working inside a jail from £4 a week to £5.50 a week.
The minimum rate for prisoners who are ill or deemed unemployed because there is not anything for them to do was also set to go up, from £2.50 to £4, a rise of 60%.
The announcement that the proposed increase was being blocked came days after the deputy general secretary of the Prison Officers Association, Glyn Travis, claimed life was so "cushy" in Britain's jails that inmates were passing up chances to escape.
The Ministry of Justice said that the new rates had been withdrawn and were now part of a ministerial review.
Speaking on the BBC Radio 4 Today programme, Mr Brown explained: "To be absolutely clear, the proposal came to me yesterday that we wanted to announce that we raise the wages of prisoners.
"We are now debating a contract with prisoners so they are better behaved. I think any debate about what prisoners receive in pay should be part of that new contract.
"There should be rights, but there should be responsibilities, and it's the responsibilities of prisoners that I am interested in."
The Prison Service operates a range of restrictions on inmates' finances and they are not allowed to hold cash for security reasons. Money earned can be spent on expenses like phone calls, renting a TV or buying treats from the canteen.
