Corrections Minister Sam Lotu-Iiga, right, with Corrections chief executive Ray Smith announcing that the government was taking over the running of Mt Eden prison as of Monday.

The embattled private company running Mt Eden prison will face financial penalties of half a million dollars after allegations of prisoner mistreatment.

Last week, Corrections chief executive Ray Smith announcement the Government would invoke a "step-in" clause in its contract with Serco.

A management team of up to 20 people would take over the day-to-day running of Mt Eden prison from Monday.

Smith told Radio New Zealand's Morning Report he was likely to sign off $500,000 of penalties this morning before heading to the prison today.

He expected "more penalties to follow".

Allegations have swirled around the treatment of prisoners at the Mt Eden Corrections Facility, with Labour MP Kelvin Davis claiming one inmate has died, and others have suffered serious injuries while incarcerated.

Other allegations included fight clubs filmed on contraband cellphones, and the use of cannabis and alcohol behind bars.

READ MORE:

* Bashed guard said public prisons just as bad as private jails

* Corrections Minister Sam Lotu-Iiga thrown under a train by Corrections bosses

* Prisoner death claim by Labour MP Kelvin Davis over fight club allegation

* Mt Eden prison has most inmate assaults in New Zealand

Smith said a final warning must be given before Serco's contract was terminated.

Corrections Minister Sam Lotu-Iiga said he was unhappy with how information had flowed from Serco and Corrections to his office.

On Thursday, Serco bosses met with Lotu-Iiga and reassured him there were no further incidents to emerge.

Just hours later, Smith issued a statement which detailed another prisoner alleging serious mistreatment at Mt Eden.

The inmate had been transferred out of the prison to a new facility, and arrived with injuries.

Lotu-Iiga was expecting an update on Serco's operations on Monday when he met with Smith.

Prime Minister John Key said Serco must keep prisoners safe, honour their contract, and report to Corrections when incidents took place.

Otherwise the company could be penalised further or potentially lose the Mt Eden contract altogether, Key told TVNZ's Breakfast programme.

"We are not afraid of cancelling Serco's contract," Key said.

Reviews were underway into the running of Mt Eden, which Lotu-Iiga was waiting for the results of before making a decision on Serco's contract.

Serco continued to run the 960-bed prison at Wiri, in south Auckland.