The government is understood to be developing plans that could see convicted criminals filling potholes and cleaning bins.
As first reported by the Sun on Sunday, the Justice Secretary Shabana Mahmood is said to want to expand unpaid work, which she believes to be too lenient.
She is understood to want probation teams to work with councils, so that local authorities are able to assign jobs to offenders.
Private companies would also be able to employ those who are on community sentences.
Offenders would not be paid wages, but the money earned would be paid into a fund for victim’s groups.
A government source said: “With prisons so close to collapse, we are going to have to punish more offenders outside of prison.
“We need punishment to be more than just a soft option or a slap on the wrist. If we want to prove that crime doesn’t pay, we need to get offenders working for free – with the salary they would have been paid going back to their victims.”
They added this meant doing the jobs the public “really want them to do – not just scrubbing graffiti, but filling up potholes and cleaning the bins”.
Writing for the Telegraph, Ms Mahmood, who describes herself as a “card-carrying member” of her party’s “law and order wing”, said that “tough community orders work.”
An independent review of sentencing carried out by the former Conservative justice secretary David Gauke is expected to be published this week.
It was commissioned last year after overcrowding led to the early release of thousands of prisoners.
Gauke is understood to be considering recommending the idea of scrapping short prison terms as part of the sentencing review, and is likely to recommend more community-based sentencing to reduce the reliance on imprisonment.
The review comes as prisons across the country are struggling to deal with overcrowding after the number of offenders behind bars hit a new high.
In an interim report, Gauke warned that unless radical changes were made, prisons in England and Wales could run out of cells by early next year.
Ms Mahmood warned that he would “have to recommend bold, and sometimes difficult, measures”.
In her article, she pointed to examples such as the system in Texas, where she said “offenders who comply with prison rules earn an earlier release, while those who don’t are locked up for longer”.
On Wednesday, she announced more than a thousand inmates will be released early to free up spaces in prisons in England and Wales, and that a £4.7bn investment will be used to fund more prisons.
Shadow justice secretary Robert Jenrick said the announcement was “failing to protect the public” – adding “to govern is to choose, and today she’s chosen to release early criminals who’ve reoffended or breached their licences”.
