Prisoners freed under a controversial early release scheme to tackle jail overcrowding could be put up in taxpayer-funded hotels.

Justice Secretary Shabana Mahmood said inmates who are homeless on release could be temporarily placed in budget hotels if there is not enough space in bail hostels and other community accommodation typically used for offenders.

It comes after 1,700 prisoners were released from jails across England and Wales yesterday with sickening pictures showing celebrations including soaking themselves in sparkling wine and punching the air.

Ms Mahmood told the Commons yesterday: “If an offender is at risk of homelessness upon release, they will be housed in community accommodation.

“We expect to provide housing for the majority of offenders using existing provision.

“But should there not be enough provision, I have authorised probation directors to make use of alternative arrangements, including budget hotels as a temporary measure for the cases that we will see in the next few weeks.”

Ms Mahmood announced plans in July to temporarily cut the proportion of sentences which inmates must serve behind bars from 50% to 40% as the Ministry of Justice (MoJ) said overcrowding had pushed jails to the “point of collapse”.

The latest releases are in addition to the around 1,000 inmates normally freed each week.

Downing Street said the policy had to be brought in to avoid “unchecked criminality” where the police and courts are unable to lock anyone up because there are no free cells.

MoJ figures showed the prison population hit a record high of 88,521 on Friday, having risen by more than 1,000 inmates over the past four weeks.

Chief inspector of prisons Charlie Taylor said the Government “had no choice but to do something” about overcrowding because “the bath was in danger of overflowing, and they either had to turn the taps off or they had to let some water out”.

But he warned it was “inevitable that some of these prisoners will get recalled to custody” and that some will be homeless on release – increasing the risk that they could go on to commit more crimes.

He said: “If people are coming out, they’re not properly prepared, and they’re homeless, then what we’ll see is the danger that they’ll commit more offences, or that they breach their bail conditions, in which case they’ll end up back inside again.”

On Monday, it emerged some victims were not prepared in the wake of their perpetrators being freed early.

There are also fears not all criminals with a history of domestic abuse will be exempt from the policy despite efforts to keep them behind bars.

The Government said those convicted of sex offences, terrorism, domestic abuse and violent crimes would not be freed early under the scheme.

A MoJ spokeswoman said: “It is important for offenders to have a roof over their head when they leave prison, otherwise there is a high risk they will reoffend and end up back behind bars.

“That is why the Prison and Probation Service has basic housing for offenders who would otherwise be forced to sleep on the streets with additional ad hoc arrangements only to be used as an absolute last resort.”