Prime Minister John Key says double bunking in prisons will be used where appropriate.
The Government is in talks with the prison guards union, the Corrections Association, Corrections Minister Judith Collins confirmed this afternoon.
She would not comment further, saying changes were subject to staff members' collective contract and negotiations were not finalised.
Mr Key said in general he was comfortable with the idea.
"In my opinion, where double bunking will work and where there is satisfaction that it can be appropriately be carried out, we should do that, because it reduces the demand on the New Zealand taxpayer," he told reporters.
Corrections Association president Beven Hanlon was reported by The New Zealand Herald this morning saying that 950 extra beds could be added to cover prisoner growth in the next 18 months.
The Corrections Department had reservations about the idea as cells were small and it could lead to tensions between inmates.
Former inmate Greg Newbold, now a criminologist, said double bunking would lead to rapes, bullying and violence and would be "the beginning of the decline of Corrections in this country".
Ms Collins was asked about problems with double bunking.
"Double bunking is something that is regularly used in police cells and there are generally no problems with it at all," she told reporters this afternoon.
"It's quite a common thing that's in use and certainly a lot of our prisons have been built with it."
Mr Key said it came down to cost and getting maximum use out of facilities.
ACT law and order spokesman David Garrett said criminals had lost their right to have their comfort considered.
He said the prison population was growing and something had to be done.
Mr Garrett referred to Dr Newbold's remarks about rapes increasing.
"Rape is a crime wherever it occurs, and can be dealt with in the same way as any other offence committed in prison," he said.
"The fact is if you don't want to be assaulted - or worse - by a cellmate, avoid prison by not committing a crime."
The Government also plans to allow private management of prisons.