The Government says more beds will be added to Auckland's secure psychiatric hospital over the next four to five years to try to cope with the growing number of prisoners needing treatment.
The Ministry of Health says as many as 20 acutely psychotic prisoners needing treatment at the Mason Clinic in Auckland remain in jail because of a bed shortage.
Associate Minister of Heath Todd McClay says the Ministry and the Waitemata District Health Board are discussing the number of additional beds to be provided.
Mr McClay says the extra beds will be be funded by money provided for rebuild work that is underway at the Mason Clinic.
He says the Capital and Coast DHB is also providing up to five beds for Auckland patients to take pressure off the waiting list.
Detailed figures from the Waitemata District Health Board show 50-70% of mentally ill prisoners are not being admitted to the clinic within the target timeframes.
The health board, which runs the clinic says it aims to admit acutely unwell prisoners within six weeks and those categorised as sub-acute within three months.
The ministry's director of health, John Crawshaw, says the problem has been exacerbated by rising prison numbers in Auckland and fewer beds at the clinic while it undergoes repairs.
He says the issue must be fixed urgently and the ministry is working hard to resolve it.
Mr Crawshaw says Wellington's Capital and Coast District Health Board is taking pressure off the waiting list by providing up to five beds for the use of Auckland patients.
A long-time advocate of prison reform, Peter Williams QC, says prisoners who are not treated for their mental health problems will suffer, as staff are not equipped to deal with their extreme behaviour.
Associate Professor of Forensic Psychiatry at the University of Otago's Christchurch School of Medicine Phil Brinded says in the past 12 years the prison population has doubled and forensic mental health services have not kept up.
Doctor Brinded says people with severe mental illness should be in hospital, not prison.
The Ministry of Health says more beds will become available in Auckland when the Taharoto acute mental health centre re-opens in 2015 after a $25 million rebuild.
The Mason Clinic has said in a statement that critically unwell prisoners continue to be seen or admitted within a day of referral.