The government is promising to create another 10,500 prison places
Some inmates are living and sleeping in toilets because of jail overcrowding, a report says.
HM Inspectorate of Prisons found Doncaster jail's two-man cells had been turned into three-man cells by putting an extra bed in the toilet area.
The Home Office said the prison is addressing the issues raised.
Meanwhile, a separate report from the Commons justice committee says the government's sentencing policies are adding to overcrowding in prisons.
Doncaster jail, run by the private firm Serco, holds almost 1,000 male prisoners - 200 more than it can accommodate in uncrowded conditions.
The Chief Inspector of Prisons for England and Wales, Anne Owers, said using the toilet area as accommodation was "unacceptable" and called for the practice to end.
The unannounced inspection, carried out in February, also found a "worrying" deterioration in healthcare for prisoners and an increase in violence and self-harm.
But the inspection did find some progress from the previous visit, including an improvement in relations between prisoners and staff.
The jail's resettlement provision was described as among the best for a busy local prison.
Michael Spurr, chief operating officer for the National Offender Management Service, said: "I am pleased that the chief inspector has acknowledged the progress made at Doncaster since her last inspection.
"However, there remain areas for improvement and these will be monitored closely."
In its report, the justice committee called ministerial pledges to build more cells a "risky" strategy that had failed to address deeper issues over crime.
Its chairman, Liberal Democrat MP Alan Beith, said: "Changes in sentencing policy and practice leading to longer sentences have been a significant contributor to the unexpected and unplanned increase in both prison and probation populations.
"We urge the government to address sentencing policy in a more considered and systematic way and to reconsider the merits of this trend."
The MPs criticised a "deeply unimpressive" government-commissioned review of sentencing by Lord Carter, which they said was based on "wholly inadequate" consultation.
The report said: "There is a contradiction in stating that prison should be reserved for serious and dangerous offenders while not providing the resources necessary to fund more appropriate options for other offenders who then end up back in prison.
"Short custodial sentences are very unlikely to contribute to an offender's rehabilitation; in fact, short custodial sentences may increase re-offending."
Community sentences, instead of replacing short jail terms, were being used in place of fines, adding to the "inexorable rise in sentences".
The MPs said it was "wholly indefensible" that prisoners were being kept in jail too long because of problems with "indeterminate" sentences, introduced four years ago for "dangerous" criminals.
Under this system, a minimum prison term is handed down, but the offender must satisfy the authorities that he or she is fit for release and does not pose any threat to the community.
The report said indeterminate sentences should only be used as a "rare exception".
They were being given to inmates handed prison terms so short they could not complete courses required to win parole. This meant they had to be kept on after the end of their intended jail term.
Justice Secretary Jack Straw has already announced indeterminate sentences will be amended to apply only to prisoners who are given a minimum of two years in jail.
The committee's report also called for an "urgent review" of the numbers of young people being given short jail terms.
Mr Straw last year announced a £1.2bn plan for an additional 10,500 prison places, 7,500 of them in three "Titan" prisons.
For the Conservatives, shadow justice secretary Nick Herbert said there was a "complete incoherence in government policy which has lurched from releasing 30,000 prisoners a year early to belatedly building the biggest prisons in Europe".
Liberal Democrat home affairs spokesman Chris Huhne said: "This devastating report makes it perfectly clear that the current prison overcrowding crisis is a product of the government's short-sighted criminal justice policies."
Prison Reform Trust director Juliet Lyon said: "This blistering report must make ministers review their failing prisons policy before they disappear down the bottomless public spending pit of Titan jails."
But Justice Minister David Hanson said: "Thanks to the policies of this government since 1997, crime has fallen dramatically.
"This is the only post-war government to have overseen a cut in crime rather than an increase. We are unapologetic about our approach to law and order: it has made our communities safer and there is no greater priority for government.
"Prison sentences which punish and reform, not least through education and training, are a vital part of a justice strategy which has helped this fall in crime."
Mr Hanson added: "We will respond to the detailed points in this report in due course."