Media playback is unsupported on your device Media caption Ken Clarke on how he thinks the union should respond to his decision

Birmingham Prison is to become the first jail in the UK to be privatised, Justice Secretary Ken Clarke has said.

The decision to award security firm G4S the contract to run the 1,400-inmate jail came after firms competed over the running of four prisons in England.

The Prison Officers' Association called the decision "disgraceful" and has not ruled out taking industrial action.

Mr Clarke told MPs the "military are involved" in contingency plans should prison officers stage a strike.

Thirteen private prisons already exist in the UK - 11 in England in Wales, and two in Scotland - but this is the first existing public sector prison to be contracted out. The 13 prisons are each managed by one of three firms - Kalyx (previously UKDS), Serco or G4S Justice Services.

Mr Clarke has said the move will save money and improve performance on issues such as cutting reoffending rates.

Hundreds of prison officers held a meeting outside Birmingham Prison minutes after the announcement was made. The union told its staff to turn up as normal on Friday, when a branch meeting will be held.

Although prison officers are banned from going on strike, the strength of feeling is such that some kind of spontaneous action is a "distinct possibility", said BBC Home Affairs correspondent Danny Shaw.

Analysis The private sector has operated newly built prisons for almost 20 years. Indeed, Ken Clarke, who was responsible for the Birmingham decision, became home secretary in April 1992, just days after Britain's first ever private jail opened - the Wolds, in East Yorkshire. Across the UK, 12 other jails are now privately managed - but none was previously in the public sector. It's this - the transfer of a publicly run jail into a private one - that's so angered the unions. Not only are they worried that it'll bring job cuts and a reduction in union membership, they're concerned the privatisation bandwagon will roll on. Although prison officers are banned from going on strike, the strength of feeling is such that some kind of spontaneous action is a distinct possibility. The last time did that, in a pay dispute in 2007, 20,000 members walked out.

The Prison Reform Trust said there was a question mark over whether increasing privatisation was a "good way" of improving the system.

In his announcement Mr Clarke also told MPs that G4S would run Featherstone 2 prison, a new jail opening near Wolverhampton, while Serco would continue to run Doncaster Prison, which was built by a private company.

Doncaster will become the first prison to be run on a "payment by results" basis, with Serco getting its full payment only if reoffending rates were reduced, Mr Clarke told the Commons.

The other prison in the competition, Buckley Hall, in Rochdale, will continue to be run by HM Prison Service, he said.

Workers 'betrayed'

The competition between public and private bidders to run the prisons was launched by the last Labour government, in 2009.

Birmingham jail's 752 staff were told the result of the tender at noon, said our correspondent.

He said the Prison Officers' Association (POA) had a long-standing mandate from its members to take industrial action if any prisons were contracted out to the private sector.

In a statement, Steve Gillan, general secretary of the POA, said: "This is a disgraceful decision. Prisons should not be run for the benefit of shareholders nor for profit.

Media playback is unsupported on your device Media caption Steve Gillan of Prison Officers' Association: Ken Clarke is 'playing games'

"The state has a duty to those imprisoned by the criminal justice system and this coalition government have betrayed loyal public sector workers for their friends in the private sector."

He later added: "We will not make a knee-jerk reaction. We will study what we can do and take direction from our members, but we will not rule out industrial action."

The Birmingham prison officers returned to the jail following their impromptu meeting but were said to be feeling "bitter" and "physically sick" about the announcement.

Mark Serwotka, leader of the Public and Commercial Services (PCS) union - which has 5,000 members working in prisons - said profit had "absolutely no place in our prison system".

"It is untrue that this is about efficiency. Privatisation is not a cheaper option, all it does is take money from taxpayers and put it in the pockets of the executives and shareholders of private companies such as G4S and Serco."

He added that the decision to pay Serco by results at Doncaster prison was an "invitation to the private sector to gamble on the rehabilitation of inmates and cherry-pick the easiest cases".

'Public protection'

David Taylor-Smith, chief executive of G4S, said they were "delighted" to have been selected to operate HMP Birmingham and Featherstone 2.

"We have an excellent track record in running prisons on behalf of the government, dating back nearly 20 years to when we became the first private company to run a prison with HMP Wolds in 1992," he said.

In his statement Mr Clarke said Wellingborough Prison, in Northamptonshire, had been withdrawn from the competition and would need to deliver the 10% efficiency savings required by all prisons over the next four years.

Prisons - public v private Eleven private prisons in England and Wales; two in Scotland, none in Northern Ireland

Counting Birmingham, 14% of UK prisoners are under private management; 86% public. Higher private rate than the US, at 9%

Cost per prison place higher in most categories in private prisons - eg male category B = £26,813 private, £25,881 public

Ratio of officers per prisoner - 3.78 private, 3.03 public

In 2006 basic pay was 39% less in private sector Source: Prison Reform Trust

He said the changes would bring savings of £21m for the three existing prisons and deliver the new Feathersone 2 prison £31m cheaper than originally planned and said "cumulative savings over the lifetime of the contracts for the three existing prisons are very impressive at £216m".

Mr Clarke said: "This process shows that competition can deliver innovation, efficiency and better value for money for the taxpayer - but also that it can do so without compromising standards.

"Public protection is not just about how we manage prisons in order to punish people. It is also about how we achieve genuine and long-lasting reductions in crime, by cutting reoffending."

Mr Clarke said that central to this was the pilot payment-by-results project at Doncaster Prison, where 10% of the contract price will be held back unless the prison can cut by 5% or more the one-year reoffending rates.

Juliet Lyon, of the Prison Reform Trust, pointed out that the UK had a higher proportion of prisoners in private hands than the US.

She added: "It's a very large proportion of people to be held in that way, given that prison is our most extreme form of punishment.

"We must make sure that there's adequate monitoring, proper checks and balances, to make sure this is done on behalf of the state and done properly.

"The real concern is about very poor reoffending rates and that's got to be improved. The question remains is it a good way of doing it to try and introduce more privatisation? Will that improve performance and accountability or will it lead to such tensions in the system that standards could in fact fall further?" she added.

The new contracts come into force from October, except Featherstone 2, which runs from April 2012.