The expansion of Castlemaine's Middleton Prison will create 165 jobs, the state government says.
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Contracts have been signed for the $37.6 million project, which will add 39 beds to the facility and take its capacity to 287 prisoners.
The works are expected to be finished by the middle of next year.
"These infrastructure projects are creating thousands of local jobs and a more secure prison system that boosts community safety," corrections minister Natalie Hutchins said.
"Our investment in prisons will support the rehabilitation of prisoners and help keep staff and the community safe."
The project is one of five being started to increase the size of the state's jails.
"This expansion will help create local jobs across Bendigo through design and construction of these improved facilities," Member for Bendigo West Maree Edwards said.
"I'm looking forward to seeing this investment help our area thrive."
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