Thousands more offenders are to be ordered on to community sentences - such as helping to prepare the east London site of the 2012 Olympics - in a drive to cut the prison population.
Charles Clarke, the Home Secretary, said he wanted a doubling in the number of hours of unpaid work carried out by criminals over the next five years.
Mr Clarke acknowledged that the public lacked confidence in community sentences, but insisted they could be a powerful deterrent to offenders if they were made "frightening" enough.
Publishing a five-year criminal justice plan, he said: "Unpaid work is the core of it all. If you have to work rather than hang around in a prison cell, I think that is tougher."
The Home Office suggested that offenders could help preparations for the London Olympics, as well as helping to renovate homes and remove graffiti.
The prison population in England and Wales is more than 76,000. Although it has fallen in recent months, it is still 1,500 higher than a year ago and among the highest in Europe.
Mr Clarke set out plans to reduce the numbers behind bars by diverting prisoners on short jail terms into community sentences, cutting numbers of people on remand and repatriating many of the 10,000 foreign nationals in prison. The Custody Plus scheme will be introduced in autumn this year. It will involve all sentences of less than one year being changed so that offenders spend a shorter time in prison and a longer period under supervision in the community.
So-called "going straight" contracts - modelled on the privileges system in jails - will be introduced. Offenders in the community who behave themselves will get "rewards" such as attending fewer compulsory supervision sessions. Mr Clarke said he would introduce community prisons with "modest levels" of security and closer links with the local area. He is reviving plans for a new system for fines, based on the ability to pay.
Juliet Lyon, the director of the Prison Reform Trust, said: "Not before time, a Home Secretary has had the courage to admit that prison often fails to prevent reoffending, and the foresight to set out a blueprint for reform.
"By reserving prison for the most violent and serious offenders, Charles Clarke will score a double hit: ensuring petty offenders pay back to the community and freeing up prison staff to prevent reoffending and ensure public safety.
However, David Davis, the shadow Home Secretary, said: "It cannot be right or fair to the law-abiding public to address the problems of over-crowding by releasing dangerous prisoners on tags, or by simply not sending them to prison in the first place."Reuse content