Corrections says the increase in capacity at Wiri will create space across prisons nationwide, making it easier to transfer some prisoners from Tongariro/Rangipo closer to their likely release location.
The closure of the four 60-bed units is due to take place between September and the end of the year as prisoners are progressively transferred - subject to consultation and pressure for inmate beds.
Corrections' central regional commissioner, Terry Buffery, said some of the Rangipo units were up to 55 years old and were in poor condition with lack of acceptable security and supporting infrastructure and had come to the end of their useful life.
"We are investing in the Tongariro end of the prison where we are consolidating the operations of the site."
Mr Buffery said the department's main priority was to support staff through the changes.
He said in the first instance it would seek to manage the reduction in staff numbers through existing vacancies at Tongariro/Rangipo, voluntary transfers to vacancies in other prisons and an enhanced early retirement programme.
"These options will be explored with staff on site, and nationally with unions, during the consultation period.
"Given the scale of change at Tongariro/Rangipo Prison it is likely there will be a level of redundancies." Staff have been given the opportunity to comment on the proposal, with a final decision due to be made within the next month.
Proposed improvements at the prison over the next two years include upgraded trade training facilities, a new prison perimeter fence and entry buildings. The trade training development will include new farm training classrooms and livestock sheds, and facilities for industry-based training.
Mr Buffery said the redevelopment of a new transit hub, receiving office, gatehouse, trade training facilities and a secure perimeter would significantly lift the standard of the prison.
A new $8.3 million receiving office and transit station that includes high and maximum security holding cells opened last year. The upgrade is part of an $81.5 million programme of capital works in five prisons from 2013-2017 aimed at making them places of industry learning and rehabilitation.