Wellingborough Prison will shut by the end of this year, with a reduction of nearly 600 prison places as a result of the closure.
The Northamptonshire prison is home to Category C, adult males.
The plans have been announced by the Lord Chancellor and Justice Secretary, Kenneth Clarke.
Currently, the prison population in England and Wales is more than 86,000 and the prison estate had sufficient capacity for a further three and a half thousand prisoners.
Capacity continues to grow and it's thought that the number of available prison places will reach more than 91,000 by the end of the year, following the addition of new accommodation including the opening of two modern prisons, HMP Oakwood and HMP Thameside earlier in the year. As a result the opportunity exists to further improve the estate by closing uneconomic prison places at HMP Wellingborough.
Lord Chancellor and Justice Secretary, Kenneth Clarke, said: “The public has the right to expect continuing improvement in the quality and efficiency of public services, without compromising public safety.
Closing outdated and expensive prisons is an important step in our strategy to deliver a fit for purpose modern custodial estate that can provide high quality, cost effective and secure regimes that protect the public and reform prisoners. Closing this one prison alone will save millions of pounds for the taxpayer.
“The changes will reduce our current capacity by 588 places and I am confident that they can be safely managed within existing headroom, whilst maintaining our ability to cope with any potential increase in population.”
The Prison Service say closing the Northamptonshire prison will save over £10m each year and avoid significant capital costs of up to £50m - a sum they say is needed to maintain the prison in the future.
The Justice Secretary added: "We expect to be able to absorb staff displaced by this process elsewhere in the system and to avoid the use of compulsory redundancies.
"Decisions on the future size of the prison estate will be driven by population demand and prisons will only close when capacity allows. We will always ensure that there are sufficient places for those offenders sentenced to custody by the courts, including a margin to manage fluctuations in the prison population.
Decisions to close future capacity will only be taken if they do not put this ability at risk."