By Dominic Casciani
Dame Anne said mental health services in prisons remained stretched
Jails in England and Wales could become more unstable because of budget cuts and a rising population, the chief inspector of prisons has warned.
Dame Anne Owers, who is stepping down, said there had been improvements over her nine years monitoring jails.
But mounting pressures on the system compromised successful rehabilitation.
In her final annual report, Dame Anne also raised concerns about the number of foreign inmates still being held in jail at the end of their sentences.
Over the course of nine years, Dame Anne's reports have warned of impending crises, including overcrowding and the foreign prisoners row that led to the 2006 sacking of Charles Clarke as home secretary.
In her report, Dame Anne says she believes prisons are better than they were - but important progress was at risk because of the "inherently fragile" environment of many jails.
"In general, the prison system, in spite of the progress it has made, remains caught between the irresistible force of an increasing population and the immovable object of actual and threatened budget cuts," said Dame Anne.
"The consequences of overcrowding and population pressure have been themes running through all my annual reports."
Prisons have been told to save 3% this year from their budgets while the population continues to grow by about 2,000 a year.
Budget pressures were now so intense that prisons were being told they "they should aim for the bronze, rather than the gold, standard".
Dame Anne said there were almost a third more men in prison than when she became the watchdog and that one in 15 of them was serving indeterminate sentences without the resources needed to rehabilitate them.
The chief inspector said that mental health services remained stretched and there had been "no discernible progress" in rehabilitation for young adults.
But she praised prisons for reducing the rate of suicides and incidents of self-harm.
She also underlined that for the first time since 2001, the number of under-18s in jail fell below 2,000 at the end of last year.
Dame Anne said that the government was still not dealing properly with foreign prisoners, be it releasing them at the end of their sentence or deporting them.
Parliamentary figures show that during 2009 an average of 550 foreign prisoners were being kept inside each month despite having come to the end of their sentence while a further 1,250 were bring held in immigration removal centres.
Approximately a fifth of these prisoners were held for more than a year after the end of their sentence.