Sentencing in England and Wales should be more closely linked to the number of jail places available, a major review is expected to recommend.
Three "super-prisons" housing about 2,500 offenders are to be built, Justice Secretary Jack Straw has said.
Lord Carter of Coles will advise jail sentences in certain cases should be given only if there are empty cells - in a bid to balance demand with supply.
He said a building and modernisation programme, which follows a government review of jail policy, will provide an extra 10,500 prison places by 2014.
He is also expected to propose limiting indeterminate prison sentences and expanding community penalties.
An extra £1.2bn will be invested on top of the current £1.5bn to deliver the programme, Mr Straw told MPs.
Ministers are due to stress jail is the only option for dangerous offenders.
The plans were announced as part of a major review investigating the supply of prison places.
The review was set up by ministers to look at prison overcrowding.
One of the so-called Titan jails, which will be larger than any prison currently used in Britain, will be in service by 2012.
'Controversial move'
The other two are expected to be built by 2014.
Former Justice Secretary Lord Falconer tasked Lord Carter with investigating the supply of prison places and demand for them in the short, medium and longer term.
Mr Straw said the Ministry of Justice was also looking for a prison ship.
However, the conclusions of the review are expected to be approved by his successor, Jack Straw.
BBC home affairs correspondent Danny Shaw said Lord Carter's recommendation for the long term - to only award jail sentences if prison cells are available - is likely to prove controversial.
But, our correspondent said, it was not yet clear how the system would operate.
Lord Carter consulted the Lord Chief Justice of England and Wales, Lord Phillips, who has also suggested linking resources to the setting of the sentencing framework.
Last month, Lord Philips told a Howard League for Penal Reform event that UK jails were "full to capacity", adding: "We simply cannot go on like this."
He said the consequences of giving longer sentences for murder and other serious crimes had not been foreseen by ministers and called for more emphasis on fines and community rehabilitation as well as increased effort to tackle family breakdown.
Juliet Lyon, director of the Prison Reform Trust, welcomed the acknowledgement of overcrowding represented by the report.
She told the BBC: "It would be a recognition that we have got into a really terrible mess over a long period of time - prisons have been overcrowded since 1994."
'Kafkaesque'
She described indeterminate sentences as "badly drafted" and "Kafkaesque".
Ms Lyon explained that in order to be released from an indeterminate sentence, prisoners must prove they are no longer a threat to the public by doing courses while in prison, but the courses are often not available to them.
Liberal Democrat justice spokesman David Heath said that building more prisons was not the answer to overcrowding because the government was unable to "keep pace" with the rate of sentencing.
He said: "I'm interested in a penal system that actually works to cut re-offending and make people safer and, at the moment, we have something that does exactly the reverse."
However, shadow justice minister Nick Herbert said providing more prison places was a better option than not sentencing criminals to imprisonment.
Mr Herbert said: "The government should provide emergency short-term capacity to house these prisoners."
Firstly, most have been through the gamut of community sentences already, and secondly, these community sentences aren't robust Nick Herbert, shadow justice minister Send us your comments
He said it was "extraordinary" that the government was suggesting limits on indeterminate sentences because they had been brought in by Labour and previously worn as a "badge of honour".
Mr Herbert also criticised plans to expand the use of community sentences.
He said: "Firstly, most have been through the gamut of community sentences already, and secondly, these community sentences aren't robust."
The latest prison population figure for England and Wales show it has dropped to 81,455 from a record high earlier in November
The Ministry of Justice says that since Labour came into power in 1997, there are 20,000 more prison places - 3,100 of which were built in the last two years.
