Key Points:

The Government has confirmed it is replacing Auckland's Victorian-era Mt Eden Prison - with work set to begin in July.

Making the pre-budget announcement today, Corrections Minister Phil Goff said the new prison would be situated on the existing Mt Eden site, with some of the old buildings and facades kept for heritage purposes.

The $216 million prison would initially have 450 beds - to house the inmates already held at Mt Eden - but would have room to add another 570 beds.

Mr Goff said that would allow more Auckland criminals to be kept in the city, rather than transferred to other prisons, which was costly and disruptive.

About 2000 prisoners were transferred in and out of Auckland a year due to insufficient bed capacity.

Mr Goff said the upgrade would also address security problems created by Mt Eden's outdated design.

"With the ability of outsiders to throw items such as drugs into open exercise yards, among other reasons, it is not satisfactory from a security point of view."

It would give inmates more modern and secure cells and would enable razor wire and guard towers to be done away with.

Mr Goff said the existing prison's landmark old stone building would be upgraded and converted into an administration block and other parts of the prison could be made into a public museum.

Visually, the new prison would be designed so it fitted in with the surrounding commercial buildings.

Mr Goff said the Government would contribute $110.3 million of the capital cost of the prison over the next four years - along with $13.6 million in operating funding.

The Corrections Department would pay $106 million from its capital budget and $22 million towards operating costs over the next four years.