New Zealand is running out of space for its burgeoning prison population and has decided to start using shipping containers to house its inmates.

The Rimutaka prison near Wellington will be the first jail in New Zealand to confine prisoners to shipping containers.

A shipping container unit with 60 beds is being set up on a field in the prison grounds. It will house high to medium security inmates and will be staffed by up to 25 guards.

The New Zealand Corrections Minister, Judith Collins, says 12 years ago there were 5,000 prisoners, now there are nearly 8,500.

She says shipping containers are cheap and effective.

"The container cells being evaluated are modern, clean, but hardly Club Med. Our prisons should be places that people don't want to return to."

It is estimated that in 10 years time, New Zealand will need 5,000 more prison beds.