The National Government has scrapped building a new prison and will gamble on ramming inmates into existing space with double-bunking to deal with bulging numbers.

The Budget put $385.4 million towards double-bunking in five prisons, creating cell space for 1000 more inmates.

There was no funding for the new prison that National had maintained until yesterday would be required under its law and order regime.

The jail was to have housed up to 572 prisoners and cost $314 million to build, with annual costs of $43 million a year - virtually the same amount that will now fund double-bunking.

Corrections Minister Judith Collins said the new prison might not be built at all.

She said the plan still existed but "we are in very tight economic times and we have to look for solutions elsewhere".

The lack of funding comes despite a Treasury warning in yesterday's Budget that growing demands on prison space could cost up to $1.566 billion over the next nine years.

The prison population is steadily growing and National is introducing hardline bail and parole measures as well as more police officers and increased DNA sampling.

Labour's law and order spokesman, Clayton Cosgrove, said the new prison was highly unlikely and double-bunking was "jargon for overcrowding".

Mr Cosgrove said double-bunking would increase prison rape, suicide, violence against officers and between inmates and psychological problems.

He said it would lead to an unfairly punitive prison system with greater pressure on communal space, meaning prisoners would be locked down in cells for longer - with less time in rehabilitation programmes.

Corrections Association president Beven Hanlon said double-bunking 1000 more prisoners "scared the crap" out of members. He predicted many would head for Australia as a result.

The association is still to sign an agreement with Corrections that its members will staff double-bunking prisons.

"Our concern is about the unsafe situation now and the proposals I have seen for double-bunking haven't addressed that."

Mr Hanlon said it was "most definite" some officers would opt to work in Australian prisons, where they could earn more money and they would be safer. The Budget had allocated more funding for more frontline prison staff but that was always going to be needed, he said.

Ms Collins said she was confident an agreement would be reached in time.

She said the growing prison population meant there was no choice but to double-bunk prisoners, which cost considerably less than building a new prison. It was already done in 20 per cent of New Zealand's prison space.

Ms Collins said the new double-bunking could start next year, with $145.8 million to build the beds in place across the next two years, and $218.6 million put aside for operating funding over four years.

Bunks will be put in the Ngawha prison, Auckland Women's, Waikato's Spring Hill, Otago and the Mt Eden-Auckland Central site, where a new prison is being built.

The remaining $21 million is going towards planning for extra capacity in prisons in the upper North Island.

Ms Collins said she did not want to just keep building prisons like Labour did.

"If we don't have to build a new prison, then I would be a very happy Minister of Corrections, and the Minister of Finance would be even happier."

* $385.4 million to introduce double-bunking in five prisons, creating space for 1000 prisoners.
* New prison that would have cost $314 million and housed up to 572 inmates is put on backburner.