Victorian jails will receive $345 million to build more cells in an effort to cope with the state's increasing prison population.
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Over the next three years about 470 new beds will be opened in prisons across the state as the Andrews government tries to manage the system's rapid growth.
Corrections Victoria is yet to finalise which prisons will get the new beds.
Corrections Minister Gayle Tierney said the expansions would ensure prisons were well-equipped to "meet demand and keep Victorians safe".
"Victoria's prison population has grown significantly in recent years, so these new beds will ensure our prison system remains safe and effective," she said.
The state's prisoner numbers have reached record highs with 7,143 inmates reported in September by the Australian Bureau of Statistics.
The government says this is down to changes to the parole system, sentencing changes, extra police and a rising population.
The state's bail laws were overhauled this year and made the most onerous in the country after it was revealed accused Bourke Street Mall killer Dimitrious Gargasoulas was out on bail for dangerous driving offences when he allegedly deliberately drove into crowds, killing six people and injuring dozens more.
Overcrowding contributed to the largest prison riot in Victoria's history when inmates caused $10 million worth of damage at the maximum security Metropolitan Remand Centre in 2015.
In March last year it was revealed Corrections Victoria was so overwhelmed by inmate numbers it was failing to bring prisoners on remand to court appearances.
The state's newest prison, the medium security men's facility Ravenhall Correctional Centre, opened in October. Ms Tierney said the 1000-bed jail had already provided a significant boost to the system's capacity.
The funding will also see dedicated premises set up for the Adult Parole Board and the new Post-Sentence Authority.