An early release scheme to ease overcrowding in prisons could allow the Ministry of Justice to slash the jail terms of thousands of inmates.
The plans by Justice Secretary Michael Gove would see more British prisoners let out on day release in order to work while being monitored by satellite trackers, The Times reported.
Such devices would allow for a new form of semi-custodial sentences, where prisoners can work through the week and return to their cells for the weekend.
More foreign inmates would also be released at least nine months early, but only if they agreed to leave the country, according to the report.
Mr Gove, the Times reported, said prisoners should not be punished when they were in jail. He said: "Sending someone to a cell is punishment itself."
In July, a highly critical annual report from the chief inspector of prisons warned the UK's jails were in their worst state for 10 years. This was partially fuelled by the growing popularity of drugs that trigger a "legal" high.
Staff cuts and overcrowding also had a "significant impact" on safety, while some inmates were languishing in cockroach-infested cells, prompting one staff member at London's Wormwood Scrubs to say: "I wouldn't keep a dog in there."
A Ministry of Justice spokesman said: "We want foreign criminals deported as quickly as possible. We also want to ensure the sentences handed down to British criminals keep all our citizens safe. Protecting the public is our first responsibility and we won't compromise on that for any reason."