The Government is on a collision course with prison officers after announcing plans to privatise jails, sparking threats of industrial action.
Justice Secretary Kenneth Clarke said private sector contractors will run three prisons in England, with HMP Birmingham moving from the public sector to private contractor G4S from October.
Doncaster prison will become the first to be run on a "payment by results" basis, with contractor Serco getting its full payment only if reoffending rates are reduced, Mr Clarke told the Commons.
The new Featherstone 2 prison will be run by G4S but Buckley Hall in Rochdale will remain under the control of the Prison Service.
The Prison Officers Association said it would not rule out industrial action, describing the announcement as a "disgrace".
Hundreds of prison officers held a meeting outside Birmingham Prison minutes after the announcement was made in the Commons.
POA general secretary Steve Gillan told the Press Association: "This is a disgraceful decision which is politically driven and morally repulsive.
"I condemn the previous Labour government and the coalition for imposing this on loyal public sector workers.
"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."
Mr Gillan said he believed prison officers could embark on certain types of action even though striking has been made illegal.
"This is the wrong decision and politicians should hang their heads in shame. They are saying it is OK for shareholders to make a profit out of incarcerating prisoners.
"What will be next, I wonder - privatising the police?"
Mr Gillan said he believed the Prison Service would go into "meltdown", adding that the POA would resist any compulsory redundancies.
Mr Clarke confirmed to the Commons that military personnel were on stand-by if prison officers decided to take strike action.
"There always used to be contingency plans because governments have to have them because, unfortunately, if people are so unwise as to go into industrial action in prisons, it can rapidly become far worse than a normal strike because you can have violence and disorder amongst the prisoners in prison.
"We have contingency plans and the military are indeed involved. But I should make it clear that no-one is talking about a military takeover of our prisons. The prison governors will still be in charge and so will the Prison Service but it is only prudent to make sure that we do have the military prepared should it be required."
The Justice Secretary told MPs that the contest for the contracts would secure "significant" quality improvements and savings at all the establishments involved.
"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.
"Before the bids were evaluated for anything else, they needed to demonstrate their fundamental ability to provide safe and secure custodial services.
"I can confirm that, over the spending review period, the new contracts will deliver savings of over £21 million for the three existing prisons and, in the same period, the new Featherstone 2 prison will be delivered at £31 million less than the costs originally approved by the previous government.
"Cumulative savings over the lifetime of the contracts in the three existing prisons are a very impressive £216 million."
Under the changes announced today, Birmingham will be run by a private contractor after previously being run by the Prison Service.
Doncaster was previously run by Serco, but its new contract will only be fully paid if reconviction rates within a year of release are reduced by 5%.
The new contracts, including the Prison Service's deal to continue running Buckley Hall, will commence in October.
Featherstone 2 is a new jail opening near Wolverhampton and the G4S contract will begin in April 2012.
In a statement to MPs Mr Clarke said the competition process which led to today's announcement began under Labour in 2009.
As well as the four prisons whose contracts were announced today, Wellingborough was also earmarked for potential privatisation.
But Mr Clarke said Wellingborough was withdrawn from the competition process because extra spending was needed to secure its long-term future.