Corrections Minister Damien O'Connor says society might be better served if up to 30 per cent of prisoners are given community-based sentences instead.
The figure covers the number of low-level offenders who are sentenced to jail terms of six months or less.
The minister has just returned from a fact-finding trip to Europe, visiting countries considered to have more liberal prison systems than New Zealand.
He paid particular attention to "open prisons" operating in Finland, the Netherlands and Britain and is also signalling an interest in adapting the models to run here.
Open prisons differ, but they all enable certain inmates to leave jails during the day to work in the community as they approach the end of their sentences.
New Zealand has a similar work-to-release scheme, but it is barely operational - partly because the eligibility terms are so restrictive - with an average of only 15 inmates at a time employed, the Corrections Department's last annual report said.
The number of remand and sentenced prisoners in jail yesterday totalled 7524.
This is much higher than forecast, raising questions about whether the $890 million being spent building four new prisons will be enough and sparking the rethink.
Mr O'Connor said the Government was not "at this stage" planning to revisit sentencing and other laws it had introduced since 1999 in response to a public referendum calling for tougher punishments.
But he has acknowledged that the changes may have seen a greater increase in the muster than was intended and has said a greater range of non-custodial sentencing options for judges may be in the future mix.
He has rejected suggestions that the Government is doing a u-turn, despite pitching a different line from that of former Justice Minister Phil Goff.
During the last term of Parliament Mr Goff repeatedly trumpeted the law changes and the ensuing rise in the prison population as a successful Government response to the referendum.
Aside from the political sensitivities around the Government's changing tack, Mr O'Connor will also have to win public support for his controversial proposals.
He appeared yesterday to have scored a coup in this area by gaining the qualified support of Sensible Sentencing Trust spokesman Garth McVicar for both proposals.
Mr McVicar, with a representative of the liberal Prison Fellowship which has been pushing for reforms, accompanied Mr O'Connor on the overseas trip.
The minister said: "We've got 30 per cent of the prison population in for sentences of under six months. Many of those people will serve less time.
"It does beg the question: Is that the best utilisation of jail cells, of Corrections focus, and can they repay their debt to society in a more appropriate and useful way?"
He suggested this group was clogging up the prison system at significant cost - about $170 a day - without having the time to benefit from rehabilitation programmes.
Critically, international and local evidence showed those given a prison rather than a community sentence were more likely to reoffend - a primary reason to review present practice.
None of the proposals would involve dangerous inmates, he said.
Mr McVicar said he agreed that non-violent, low-level offenders might be better off being made to work in the community and taught skills, but he would want only first-timers to be eligible.
The trust hadn't had a change of heart. "We are leading the get-tough-on-crime charge, but ultimately you can't just keep locking people up."
Auckland District Law Society president Gary Gotlieb said he welcomed Mr O'Connor's ideas.
But National law and order spokesman Simon Power said he doubted the public would tolerate the proposals.
Bid to cut jail numbers by third
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