A prison ship condemned as little better than a "container" for human beings and sold three months ago at a £7.5m loss has become the leading contender in the Government's search for a new detention vessel.
Ministers have given priority to proposals to part-fund a £6m refurbishment of HMP Weare, currently moored off the Dorset coast, The Independent can reveal.
Under the proposed deal, the Home Office would lease back the 27-year-old accommodation ship from its owners, an oil industry support company based in Nigeria, at a further cost of millions of pounds.
The move has been criticised as "an act of lunatic desperation" to try to solve the crisis in the prison population, which has reached a record 80,000, very close to absolute capacity.
John Reid, the Home Secretary, announced in October that he was seeking bidders to supply a ship or ships capable of housing up to 800 prisoners or detainees as part of attempts to expand capacity.
But the proposed recommissioning of the Weare is an embarrassing U-turn for the Home Office, which closed the floating jail in Portland, near Weymouth, last year, seven years after it was opened as a "temporary measure".
Paul Goggins, who was Prisons minister, said at the time that it was "not suitable" and offered "little scope" for activities to reduce reoffending.
It was closed in November 2005 after the chief inspector of prisons, Anne Owers, declared it was unfit for purpose with no access to fresh air and insufficient space for exercise or education. She said: "Weare is, literally and metaphorically, a container."
The ship is now being pursued as the "main option" in the procurement process after efforts to lease a six-storey accommodation barge off Amsterdam were deemed too expensive. The current Prisons minister, Gerry Sutcliffe, is expected to make the final recommendation on its re-use within the next few days.
A source close to the negotiations said: "It is a measure of how dire the situation has become that a facility that was written off as unsuitable and sold at a fraction of its original cost is now being pursued as the main option... It is seen as the quickest fix available."
The ship, which was used to transport soldiers during the Falklands war and was about to lose its sea worthiness certificate in June, was sold for £2.5m this summer to the Sea Trucks Group, a Lagos company which supplies specialist equipment to the oil industry. The company declined to comment.
It is understood that the Weare, which was brought into service as a prison ship in 1997 at a cost of £10m, would be reinstalled at a secure quayside in Portland Harbour alongside land-based facilities including an exercise yard.
In order to satisfy concerns about access to natural light and proper ventilation, the capacity would be reduced to about 300. The vessel would house low-risk category C prisoners, who are due to be released, or immigration detainees.
Penal reform campaigners said the move was an embarrassing U-turn. Frances Crook, director of the Howard League, said: "This is an act of lunatic desperation to try to respond to a crisis engineered by the Home Secretary when he insisted that all foreign national prisoners should be returned to closed prisons."
The Home Office declined to comment, saying only that no formal decision had been made on prison ships.
Funding for a further 8,000 prison places has been earmarked by the Treasury but facilities will not open before 2011.