Labour's flagship policies on criminal justice have brought about a crisis in the prison system, a group of leading penal reformers headed by Cherie Booth QC has concluded.

In a radical report, the Commission on English Prisons Today calls for the closure of many prisons and a new direction in sentencing.

The commission said that the National Offenders Management Service (Noms), established five years ago after a review led by Tony Blair's office, was "ineffective" and should be dismantled.

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Noms, which brings together the management of prisons and probation, was also attacked as "unwieldy" and "over-complex".

Instead, the commission, set up two years ago by the Howard League for Prison Reform, said the emphasis should be on imprisoning offenders locally so that communities had a financial stake in the cost of sentencing.

Its report, Do Better Do Less, concludes that prisons have become "warehouses" where people with mental health problems and those with drug and alcohol addictions are "dumped".

The authors said criminals should be given community punishments instead of short prison terms. But it failed to say how many offenders should be in prison at any one time. Prison numbers have reached nearly 84,000, double what they were in 1992, despite an overall decline in crime.

Penal policy and the criminal justice system were responsible for driving up the numbers, said the commissioners.

"The intense and punitive political activity has had an effect of encouraging a more fearful and insecure population," the report said. Government policies had "raised unrealistic expectations" of what prisons could do for society, creating a "crisis in penal excess".

Ms Booth, the commission president, said: "This final report should be a road-map for long-term and fundamental reform. The commission proposes that justice is more local. Crucially, more widespread use of effective community sentences would both allow us to reduce the use of prison and allow for re-investment of resources into local communities to cut offending."

The commission chairman, Professor David Wilson, said England and Wales punished criminals "harshly and excessively". Ministers were guilty of passing legislation that increased prison terms while disregarding the consequences for the prison population.

"The result is a crisis of overcrowding which threatens to bring the penal system to its knees," he said.

A Ministry of Justice spokesman said prison would remain a "central part" of government policy: "While we disagree with some of the commission's findings, we do agree that, for those who have committed less serious offences, community punishments are highly effective, with a lower re-offending rate than short custodial sentences.

"But prison... plays a critical role in punishing and reforming and is the right place for the most serious, violent and persistent offenders. By describing prisons as 'vast warehouses' the report both distorts reality and overlooks the superb work of prison officers and other staff who work so hard to protect the public and help offenders."