As prison populations face the brink of bursting, the state government has picked the location for the new Grafton jail.
The latest figures released last week from the NSW auditor-general found that in 2014-15 the average number of daily inmates was 11,011, despite the prison system being designed to cater for only 9829.
The new 600-bed prison, to be built in southeast Grafton, will significantly boost employment and economic opportunities within the area, said Minister for Corrections David Elliott.
"This new modern facility will have latest security and surveillance technology and is a long-term investment in this region," Mr Elliott said in a statement on Tuesday.
It is estimated the prison, to be operated as a public-private partnership, will create around 300 jobs during construction and more than 250 ongoing jobs.
Parklea prison in Sydney's west will be expanded creating an extra 400 beds, a spokeswoman for Mr Elliott told AAP.
