Home secretary John Reid has said two new prisons will be built - one in Merseyside and the other in London.
The new jails are a response to increasing prison numbers and potential overcrowding.
In the last few weeks the issue of prisoner numbers and overcrowding has received increased attention.
The announcement of the new prisons comes after the home secretary asked judges to jail only serious criminals, as prisons approached full capacity and criminals escaped prison sentences as a result.
"We are working flat out to deliver additional capacity within the prison system. In July last year I announced plans for an extra 8,000 places to be delivered by 2012. That process starts now," Mr Reid said.
"We already own two potential sites for new prisons and I can announce today that one of them is at Maghull [in Merseyside], where we already have planning permission to provide up to 600 new places by 2010. A second is next door to Belmarsh prison in south-east London, where we are still in discussion with the planning authorities.
"In total, our building programme now amounts to about 10,000 new places over the next five years. In 2007 alone, I am planning to deliver about 2,500 new places, including about 1,500 by July, with new places at 13 different prisons."
In January prisoner numbers topped 80,000, forcing hundreds of prisoners to be held in emergency accommodation in police cells.
In the autumn Mr Reid announced operation safeguard - which allows the use of police cells -as an emergency measure, and last month he reminded courts they should only be sending the most dangerous offenders to jail.
"It is necessary to a civilised society that those who are danger to our society are put away. The public have a right to expect protection from violent and dangerous offenders," he said at the time.
"However, we should not be squandering taxpayers' money to monitor non-dangerous and less serious offenders. Non-dangerous offenders should be saving the community money, not costing it money.
"Offenders should be paying back through to the community through enforced work, payback and community service, thus saving the taxpayers cost of prison places and the council tax payer the expense of further clean up."
This advice hit the headlines after a judge spared a sex-offender from a jail term, directly citing the home secretary's advice in his judgement.
"As of yesterday, I have to bear in mind a communication from the home secretary," Judge Rogers told Mold crown court in north Wales.