Scottish prisons are on the brink of a serious safety crisis because of unsustainable funding cuts and chronic overcrowding, the country’s spending watchdog has warned.

Caroline Gardner, the auditor general, said the deep cuts in day to day spending and historically-high overcrowding meant Scotland’s prisons were running “well over operating capacity”.

In a report, she said: “The Scottish Prison Service [SPS] faces a combination of severe pressures on many fronts; this poses a threat to operational safety, effectiveness and financial sustainability.”

Gardner told the Scottish parliament the service’s problems were due largely to repeated cuts in government funding, which had fallen by 12.5% in real terms since the 2014/15 financial year, falling from £395m to £345m.

Over the same period, the prison population had soared to one of the highest in Europe, up by 9% to 8,212, while costs were increasing. The European average for imprisonment is 117 per 100,000 population; in Scotland it stands at 150 per 100,000 and is expected to increase further.

“Prisoner numbers exceed the operating capacity of Scotland’s prisons and delays in upgrading the prison estate is increasing the risk of failure,” her report said. “SPS’s performance is showing concerning trends, including growing prisoner violence and high and rising staff sickness absence.”

The report highlighted:

• Significant increases in assaults on staff by prisoners.

• Stress-related illnesses among staff rising by nearly a third last year.

• Financial pressures harming attempts to prepare and support prisoners for life outside prison.

The Scottish prison system, which is overseen and funded by the devolved government in Edinburgh, has been largely insulated from the repeated crises and violence which has widely affected prisons in England.

Scottish ministers have recently introduced a presumption against putting offenders in prison for sentences of less than 12 months, to reduce overcrowding. Humza Yousaf, the justice secretary, said a greater focus on serious organised crime and sexual offences by police and prosecutors was to blame for the rising prison population.

“The Scottish government takes very seriously the pressures facing prisons and we have been working closely with the SPS to manage the rising population,” Yousaf said. “We have already made additional financial provision available to help SPS meet cost pressures and I will be working with the finance secretary [Derek Mackay] to keep the budget position under review.”

Prison reform campaigners said Gardner’s findings vindicated their growing concerns that overcrowding and underfunding made it far harder for prisoners. Aamer Anwar, a lawyer acting for the families of two inmates who had killed themselves in prison, said the report painted a devastating picture.

“Lack of funding means that support for mental health and suicide prevention is simply not a priority or non-existent,” he said. “Unless the Scottish government takes immediate action, more lives will be destroyed not just of prisoners but also those of prison officers.”