Justice ministers have delayed the outsourcing of HMP Northumberland because of an investigation into mismanagement in contracts with private security companies which provide electronic tagging.
The winning bidder for the privatisation of the prison, which encompasses HMP Acklington and Castington, was due to be announced at the end of this week.
But the decision has been put on hold as an inquiry, into whether two private companies have been overpaid, is carried out.
MP Sir Alan Beith said on Tuesday: “I have discussed this issue with the Justice Secretary today.
“Clearly any possibility of irregularity in the contracts for tagging, which were made by the previous Labour government, must be investigated and it would be wrong to proceed with the separate prison contracts until the position is much clearer.
“But this is also a reminder of how disappointing it was that ministers did not allow the public-sector bid to run HMP Northumberland from local management and staff to be considered in the final stage.”
The investigation is looking at two companies, G4s and Serco, who provide ankle tags for offenders who are subjected to certain orders.
Serco, Sodexo and MTC Amey are among those shortlisted for the new prison contracts.
Justice Secretary Chris Grayling is planning to extend the privatisation agreements already held by the Ministry of Justice by handing probation contracts to the private and voluntary sectors later this year with companies bidding for contracts for low-to-medium level offenders.