The private operator of Sydney's Parklea prison could be penalised after video footage showed a man claiming to be an inmate wielding a knife and boasting about his stash of drugs.
Corrective Services officials are investigating a "very serious breach of security" after the video, shot on a phone by a man claiming to be a prisoner, was uploaded to YouTube last month.
The inmate is seen brandishing a knife, a makeshift weapon dubbed a "slasher", and a substance he says is the drug ice. He says he is filming on a phone smuggled in by guards.
NSW Corrections Minister David Elliott says Corrective Services will review its contract with the prison's private operator GEO Group.
"I was horrified when I saw the YouTube video and immediately called for an investigation," he said in a statement on Monday.
"I have asked Corrective Services NSW to review the contract to see what penalties could be imposed if there has been a failure by the operator."
The footage has also prompted calls for more government funding for the state's prison sector.
"This is a result of a failure by the government to adequately invest in the back end of the justice system," Public Services Association general secretary Stewart Little told AAP on Monday.
"You simply cannot do things on the cheap ... it requires investment."
Parklea Correctional Centre is one of two privately-run prisons in NSW.
In the video, the man uses the "slasher" to cut the wall of his cell as an example of "what it can do to your throat" and says the jail is ruining lives.
"It is killing the young people, the young generation of this place is dead set terrorising," he said.
"Why have I got a mobile phone? It's because screws bring mobile phones into jail for money."
Corrective Services will meet with private operator GEO Group on Monday to discuss "security and safety concerns".
