Mental illness and cognitive impairment among the prison population is so high it should be "assumed as the norm" rather than the exception, a leading report has found, ramping up pressure on the state government to overhaul the criminal justice system to divert those at risk into support programs.

The NSW Mental Health Commission, a statutory agency responsible for monitoring and improving mental health in the state, said successive state governments had failed to act over the past decade and "large-scale investment" in effective prisoner diversion programs along with mental health and disability services was now required.

Half of all adult inmates in NSW have been diagnosed or treated for a mental health problem.

Half of all adult inmates have been diagnosed or treated for a mental health problem while 87 per cent of youth in custody had or have a psychological disorder, the report said.

A significant number – estimated in the range of eight per cent to 20 per cent – had an intellectual disability or borderline intellectual disability. The rate of cognitive impairment among prisoners was likely to be higher.