Jail bosses should act immediately to prevent prison overcrowding costing the taxpayer millions of pounds, the government's spending watchdog says.
The jail population has reached a record high
During the jail overcrowding crisis in 2002, inmates were held in police cells at five times the cost of regular cells, the National Audit Office said.
Overcrowding also hit education and moves to cut re-offending, it added.
The report is published as prison numbers in England and Wales reach a record 77,800 - 373 short of full.
£7m cost overrun
The comptroller and auditor general, Sir John Bourn, said: "The large prison population has led to increased levels of overcrowding, stretched resources and, at times, an urgent need to increase capacity.
"I recognise the efforts made by the National Offender Management Service to respond to this increased demand.
"But better contingency planning would help to ensure that future responses were more cost-effective."
Sir John's report also assessed a scheme begun in 2002 to create "quick-to-build" jail blocks, including 1,160 beds in temporary modular units and a further 920 in brick-clad steel-framed house blocks.
But the programme was troubled with delays and cost overruns and went £7 million over budget.
The units took an average of 134 days to build compared with the predicted 49 days.
And once built the modular units had lots of faults including leaky roofs and windows, auditors said.
Because of a fire risk the inmates could not be locked in their cells at night, and thus were only suitable for low-risk prisoners.
The modular cells are expected to have life expectancies of between seven and 10 years.
The report found that the brick-clad, steel framed house blocks were more effective even though they took more time to build - an average of 183 days.
Sir John said reducing the construction time of the modular units from 134 to 100 days could save the taxpayer £10.8m it would have otherwise needed to use on police cells.
The report also recommended that jail bosses ensure prisoners' education records were sent with them whenever they were transferred.
It also called for shorter education schemes and more use of evening and weekend classes.
Edward Leigh, chairman of the Commons Public Account Committee, urged the Home Office to act without delay so it was ready to build better and more cost-effective temporary accommodation.
"The prisons of England and Wales are close to bursting point and further substantial rises in the prisoner population are a strong possibility.
"The Prison Service has in the past been caught flat-footed when there was a sudden increase in demand for custodial places," he added.