Mr McLeish said prisons should be for the most dangerous offenders
Scotland must tackle its record high prison population through alternatives to jail, an independent review of criminal justice policy has said.
The Scottish Prisons Commission warned inmate numbers, already at about 8,000, would reach 8,700 by 2016, and said this must be cut to 5,000.
The body said ministers should bring in a single community sentence, should be used to cut short-term jail sentences.
Justice Secretary Kenny MacAskill said the current situation was unacceptable.
The long-awaited report from the commission, headed by former Labour first minister Henry McLeish, said Scotland locked up more people than many other European countries, and that prisons were increasingly used for those who were "troubled and troubling rather than dangerous".
The report, which made 23 recommendations, concluded: "High prison populations do not reduce crime. They are more likely to create pressures that drive reoffending than to reduce it."
The commission said gaining control over prison numbers had to be the first step, but added that new laws should be brought forward to force judges to impose a new community supervision sentence instead of a six-month jail term.
Mr McLeish said the public still had to be kept safe from the most dangerous offenders by locking them up, but warned that Scotland's criminal justice policy had reached a crossroads.
He said: "Scotland has one possible future where its prisons hold only serious offenders, prison staff regularly and expertly deliver programmes that can affect change and there is a widely used and respected system of community-based sentences.
"There is another possible future, one in which there are many more prisons, as overcrowded as those today.
"Dedicated and skilled professionals lack support and suffer from low morale, the public's distrust of the criminal justice system reaches record levels and fragile communities are ignored.
Mr MacAskill said the system should deliver consistently robust sentences
"We have to make a choice between these two futures."
Mr MacAskill said: "We cannot go on as we are, because if we do, our prisons are going to burst at the seams.
"We are making record levels of investment in the prison estate and building three new prisons - the first of which will open at Addiewell in January - but building more and more prisons at the expense of schools and hospitals is not the answer.
"The report sets out a challenging route map for Scotland's future which can only be achieved if we deliver sharper, more focused community penalties which have the confidence of the public and sentencers."
However, the Conservative justice spokesman, Bill Aitken, said: "Of course we must do much more to rehabilitate prisoners and continue rehabilitation on release - but if the ends of justice demand more prisons are needed, then we should build them."
He also described the justice secretary's comments about the construction of new prisons as "spin".
"There is only one extra being built, as two are replacements," he said.
"Claims of three more are bogus, and misleading."
Pauline McNeill, Labour's justice spokeswoman, said: "Cutting the prison population by 3,000 - nearly 40% of the total - is an outrageous idea.
"All across Scotland ordinary families will be asking, what message does this send about the SNP's priorities?"
The Liberal Democrats called for more focus to be placed on reducing reoffending.
Mike Pringle, the party's justice spokesman, said: "If we are serious about cutting the rates of reoffending then we will need to take dramatic action such as bringing to an end short prison sentences which offer no opportunity for rehabilitation.
"They should be replaced with tough community sentences which tackle the offender's behaviour and divert them from a continuing life of crime."