Home Secretary John Reid has admitted there are "shortcomings" in the Probation Service.
The home secretary wants private sector involvement
Mr Reid said the amount of the probation budget going to the private and voluntary sectors was not enough.
Speaking at Wormwood Scrubs, he said 10% of probation service budgets should be contracted out to private firms or voluntary groups within two years.
A wave of criticism has followed recent cases where offenders under supervision committed murders.
Mr Reid said he disliked the "outdated ideological debate" over ex-offenders. He said routine work could easily be contracted out.
"These days, less than three percent of probation board budgets is actually going to outside contractors. That is not enough.
"It is not enough to make a real difference to the lives of offenders who are trying to change their lives but in too many areas are receiving a service which is poor or mediocre.
"To be frank, the probation system is not working as well as it should. "
There was no need for all work on rehabilitation of offenders to be done by one agency, Mr Reid said, which would allow routine tasks to be done by people with lesser qualifications.
BBC home affairs correspondent Danny Shaw said the Home Secretary had described the reform of the probation service as "non-negotiable".
Mr Reid also said he wanted to see up to £250m of the service's annual budget contracted out under new legislation after April 2008, Danny Shaw reported.
The case of Naomi Bryant, murdered by a released rapist, and John Monckton, whose killer was also being supervised, generated negative press coverage and questions about the nature of Probation Service supervision.
Mr Reid told his audience: "There are some areas - not all - but there are some areas where performance isn't good enough, where dangerous offenders haven't been supervised properly.
And he said it was clear that private firms and voluntary groups could take on some of the more routine tasks.
"Some of these tasks that have to be carried out will be pretty routine like making sure that somebody observes curfew, taking random drug tests.
"Some require a much higher level of skill if it's going to be effective like putting together a package of surveillance and treatment for a serious offender."
Not 'big enough'
Shadow Home Secretary David Davis told BBC Radio 4 that he welcomed the announcement of a greater involvement of the voluntary and private sectors.
But he said Mr Reid's plans did not go far enough to address the many issues that the probation service face.
Liberal Democrat home affairs spokesman Nick Clegg said: "In launching yet more reforms to the probation service, John Reid should be careful not to blame probation officers for failings in the criminal justice system that are not their fault.
Martin Wargent, of the Probation Boards' Association, said Mr Reid was perpetrating a "sleight of hand" by linking private sector contracting out, which would be opposed, and voluntary involvement, which many professionals had called for.
"It will in effect privatise the Probation Service, whole probation areas, which is the politics of the madhouse."
He said there was no evidence that the Probation Service was doing badly.
"It's got a very high reputation. I wonder why the home secretary needs to talk down the Probation Service. It's the government and the Home Office that decides the system."
Mr Wargent said it was inevitable that some offences would be committed by serious criminals who politicians had decided should be eligible for early release.
But he added: "Of the hardcore, 99.6% don't commit a further serious offence but it is not infallible. There will always be some risk."
Harry Fletcher, of the National Association for Probation Officers, said he thought private sector competition would not work.
"This government has set the probation service over 30 targets since it came to power, and last year, 2005, we achieved our best results ever.
"So it's a bit bizarre to understand why he's thinking of introducing competition. We do work in partnership with the voluntary sector already. We work in partnership with the private sector on tagging."