"[Police] were forced to open fire and three people were injured in the legs and taken to hospital," Bali deputy police chief Ketut Untung Sayoga said.
The Jakarta Globe said police reported that one officer had been injured.
The trigger appears to have been a weekend stabbing - which had sparked an earlier, smaller, riot on Sunday - but the jail has been regularly criticised by prisoners' and human rights organisations for conditions that one report claimed lowered life expectancy among long-term inmates by 10 to 15 years.
Opened on the outskirts of Denpassar in 1979, Kerobokan was intended to house about 320 prisoners. It has three times that number.
Reporters who have interviewed Corby in jail have said the former Gold Coast beauty student shares her cramped cell with seven other women.
Health workers say problems such as respiratory and skin complaints are endemic and that as many as 30 inmates are HIV-positive.
In 2009, violence erupted when prisoners armed themselves with stones to resist a police raid, and in June last year dozens fought guards during a raid by the National Narcotics Agency. In January, Edi Suwito, in Kerobokan for only a day after being arrested for stealing a mobile phone, was brutally tortured and killed by 13 inmates sharing the same cell.
Police said the men had tortured Edi for 12 hours.
Last Sunday, three men convicted of drugs offences, named as Eko Mardianto, Dwi Wijayanto and Bashori, stabbed a fellow prisoner, Made Eriyasa, and were chased down by a crowd of other outraged inmates.
"We rescued the three from the mob and they are now detained at the Kuta Utara subdistrict police station," Badung police chief Benny Arjanto told the Jakarta Globe. But the rescue turned the prisoners' fury on police and during the ensuing riot inmates tried to escape by battering down the jail's front gate.
Tensions continued, erupting again at about 11pm local time on Tuesday. Prisoners drove guards from the jail with stones and set fire to buildings including the registration and administration blocks near the front gates. Indonesian television reports said both had been destroyed.
Armed police, including the Brimob Mobile Brigade, surrounded the jail, storming inside at first light yesterday.
The Brimob unit, which supplied soldiers for the firing squad executions of the Bali bombers, has been accused of killings and other human rights violations in West Papua.
The unit would be expected to also take part in the executions of Bali Nine ringleaders Andrew Chan and Myuran Sukumaran if their death sentences are carried out.
