John Reid is considering plans to invite private investment in new prisons, it has been reported.
The Home Secretary has been forced to take the unprecedented step after the Treasury refused funding for 8,000 new cells which were promised in the summer, the Daily Mail has claimed.
Under the scheme, investors would pay for the cells through Real Estate Investment Trusts and rent them to the Home Office.
The Home Office said that there had been no official evaluation of this particular scheme but said it was open to innovative ideas.
The development emerged after the number of prisoners in England and Wales topped 80,000 for the first time in history this week.
There were 79,908 inmates in jails and a further 152 being held in police stations under the Government's emergency plans, it was announced on Wednesday.
The landmark came as Mr Reid staged a summit with leading experts in a bid to find a solution to the prisons crisis with just 317 spare places left in jails.
Shadow home secretary David Davis said: "This is a consequence of the Labour government's failure to address the chronic lack of capacity in our prisons despite warnings over the years.
"This has been compounded by the Treasury's miserly approach towards the Home Office which has actually seen its budget frozen.
"As a result we see John Reid reduced to begging the public to stump up even more of their cash to pay to deal with Labour's failure."
