A disused wing of Ashworth special psychiatric hospital on Merseyside is to undergo a £19m conversion in an attempt to cope with a renewed surge in jail numbers. Ministers have been alarmed by the fact that prison numbers have risen by more than 200 in the last week alone to reach 79,375 yesterday, with more than 400 being held every night in emergency accommodation in police cells.

Earlier this week some prisoners in London were locked out of full-to-capacity prisons and police cells and had to spend the night in court cells. The provision of emergency accommodation in police cells proved insufficient even though the number of forces involved has been expanded to 35 in the past few months.

The prison service said yesterday that it had signed a lease with Mersey Care NHS trust for the new 350-place low security prison at Maghull, Merseyside - to be called HMP Kennet and to take its first adult male convicted prisoners this spring. HMP Kennet will be the first "new" prison to be run with public sector prison service staff - rather than by a private contractor - for more than 10 years. The east site of Ashworth special hospital was a high-security psychiatric unit with 150 mentally ill men and women in nine wards until it was closed three years ago. The main buildings of Ashworth special hospital are still in use with 275 patients.

The home secretary, John Reid, said he was committed to protecting the public and ensuring that there were prison places for those who needed to be in prison. Mr Reid had hoped to avert the immediate crisis in prison numbers by converting a former parachute regiment barracks in Dover into prison accommodation but he dropped the proposal in the face of opposition from local families with relatives serving in Iraq and Afghanistan. The crisis has been fuelled by greater caution by prison governors in releasing prisoners early on home curfew schemes and by the parole board in its release decisions. The courts have also continued to send more people to prison for longer sentences.