The Government is to allow the private sector to manage Mt Eden Prison in Auckland.
The Cabinet on Monday decided to call for tenders for the contract to manage the 120-year-old prison, as well as the Auckland Central Remand Prison on the same site.
Corrections Minister Judith Collins says the size and location of Mt Eden and the remand prison, as well as new facilities to be built there, make the prison an excellent choice for contract management.
Ms Collins says she expects the private operator to deliver cost savings as well as innovation.
The minister says the Government wants efficient prisons, in which prisoners get the chance to rehabilitate and taxpayers get value for money.
At present, it costs an average of $91,000 a year to keep a male prisoner.
Ms Collins says overseas experience shows the private sector can make significant savings through the use of technology and the way in which it rosters and uses staff.
An announcement on the successful contractor is expected to be made early next year, with management of the prison to be transferred to the new operator in August 2011.
The Auckland Central Remand Prison was privately managed between 1999 and 2005.