Massive cuts of around 30% to the justice system, which will dramatically reduce the number of people in prison, slash legal aid in divorce and family law cases, and see the closure of more than 150 courts across England, will be unveiled this week.

Details of the plans are laid bare in documents leaked to the Observer before George Osborne's comprehensive spending review on Wednesday. The Ministry of Justice emerged tonight as one of the big losers in the coalition government's spending review.

The leaked information, which lists asset sales of £845m, also prompted speculation – denied by officials – that ministers were planning to raise money by selling a number of prisons once the prison population has been reduced.

One source with experience of the Ministry of Justice said it was impossible to see how that amount could be raised without selling off large parts of the prison estate. He claimed the plans also suggested a reduction in the number of prisoners by at least 6,000.

The justice secretary, Kenneth Clarke, was one of the last cabinet ministers to settle his budget today, and is believed to have had to take an extra hit after the defence secretary, Liam Fox, and Michael Gove at education won more generous agreements than previously expected. It is thought his £9bn budget has been reduced to £6bn.

The documents obtained by the Observer show that even before the final squeeze was put on the ministry, it was planning to make savings by 2014 from the £2.1bn legal aid budget; £198m from civil and family cases and £93m from criminal cases.

Government insiders confirmed that the legal aid budget was a big target and that funds would be limited to the most deserving cases. It is understood that ministers intend to limit the amount of legal aid to people going through complex marital disputes and divorce cases. Immigration and medical negligence cases could also be targeted.

Mark Serwotka, general secretary of the Public and Commercial Services union, which represents more 300,000 public sector workers including many in the Ministry of Justice, said: "This appears to confirm our worst fears. Far from being an exercise in simply managing budgets and increasing efficiency, this shows that the government is planning to fundamentally change the shape of the welfare state.

"With unemployment expected to rise and billions of pounds being cut from the benefits paid to some of society's most vulnerable people, it is deeply troubling to consider the implications of loosening the ties that hold our criminal justice system together."

Piers Pressdee QC, co-chairman of the Association of Lawyers for Children, raised fears about legal aid being withdrawn from sensitive cases involving children.

"The priority for family legal aid must be cases – including those between parents – in which child protection issues arise," he said. "These are complex, demanding cases, involving the highest of stakes and requiring a high level of expertise to conduct properly.

"A wrong decision one way could mean a child left with a carer only to be abused again, possibly fatally. A wrong decision the other way could mean a child removed permanently from their family of birth for no good reason. We would warn against any cuts that would mean poorer representation and justice for children and their families. Nobody wants to see more miscarriages of justice in a family justice system already creaking from years of under-investment."

Latest figures from the government's Legal Services Commission annual report for 2008-09 show that £887.1m was spent on family and civil legal aid.

According to the leaked documents, some of the biggest savings – more than £200m by 2014 – were to come from sentencing reforms that are likely to see fewer short-term prison sentences with thousands diverted into community-based punishments.

With the average cost of an inmate running at £41,000 a year, reducing the prison population using alternatives to jail or shorter sentences is viewed as an obvious way to save money.

The closure of magistrates and county courts will save a further £38m. The Ministry of Justice is proposing to close 103 magistrates courts and 54 county courts. The move has been opposed by the Magistrates Association, which says it risks eroding local justice.

Reform of the Criminal Injuries Compensation Authority, the government-funded body responsible for assessing and awarding compensation claims for victims of violent crime, is predicted to save a further £99m. However, the changes are thought to be through efficiency rather than reducing the size of payouts to victims.