Thousands of crime suspects are to be housed in flats and houses in cities around England and Wales while awaiting trial, in an emergency measure to ease prison overcrowding.
Hundreds of low-risk criminals with no fixed address are also expected to benefit by becoming eligible for early release on a tag.
The £18 million-a-year deal, in which a private company will provide accommodation for suspects and ex-prisoners, is the latest measure aimed at freeing up cells in jails.
Residents living in areas where the suspects and ex-prisoners are housed will not be informed of the background of their new neighbours.
Prison numbers have risen throughout August - a month when they traditionally fall - and were at 80,803, including 110 in police cells, last Friday.
The latest measure is aimed at reducing the number of suspects awaiting trial or awaiting sentence who are held in prison because they have no fixed address. In June there were 12,844 remand prisoners in jails including 8,387 awaiting trial.
It is also intended to allow more low-risk offenders to be released under Home Detention Curfew, which allows criminals to be freed on a tag up to 4½ months early. At present a prisoner without a fixed address cannot benefit from the scheme. In a recent period of 12 months 1,400 prisoners were refused Home Detention Curfew for lack of accommodation; others did not bother to apply.
Providing the new accommodation will benefit between 7,000 and 10,000 prisoners and suspects a year, according to the Ministry of Justice.
"The accommodation will allow courts to bail defendants who are currently unable to provide a bail address or who could not be bailed without support," the ministry said. "This will reduce the loss of liberty and consequent damaging impacts on family life, employment and housing. It will also support the efficient use of public resources, saving on prison places, court escorts and costs of visits to prisons."
Nick Herbert, the Shadow Justice Secretary, said: "People will be astonished and worried by this latest panic measure to cut the prison population. First we had violent criminals released early on to the streets - now we have free housing for offenders.
"Taxpayers will foot the bill, but they won't even know that a criminal could be living next door them. If the money is available to give criminals houses, why isn't it being used to ensure adequate prison capacity?"
The National Offender Management Service, which oversees the prison and probation services, has signed a three-year contract with ClearSprings, a property company involved in housing asylum-seekers. Suspects and offenders will be held in accommodation, with up to four people sharing for an estimated seven weeks. The bill will be picked up by taxpayers unless the suspect is in work and ineligible for housing benefit or the prisoner has savings of £6,000.
Staff will provide three one-hour contact sessions in the first week of occupancy, followed by an hour a week for the rest of their stay in the premises.
The provision of accommodation in the community will require a third of the annual £23,000 cost of a prison place, the ministry said. "The provision of accommodation and support services will be in all regions of England and Wales, including all the major cities," it said in a statement.
There are about 100 approved bail hostels in England and Wales; they are run by the Probation Service and charitable organisations. Community leaders and people living in the areas are told where the hostels are situated and the type of suspect or ex-prisoners living in them. But attempts to develop new hostels have resulted in protests from local residents. A proposed network of hostels for paedophiles, announced in September 2004, has not been developed and instead existing bail hostels are increasingly being used to house sex offenders.
Prisons in England and Wales
New prison cells planned by 2011
Jails overcrowded on April 30, 2007
Prison population in 1997
Prison population in August 2007, including those in 104 police cells
Jails now holding more than 1,000 prisoners
Cost of a new cell in a Category B jail
Sources: Prison Service; Prison Reform Trust