Northern Territory Attorney-General John Elferink says prisoner numbers have dropped this year, despite the Darwin prison being full beyond capacity.
Mr Elferink said that the NT had 1552 prisoners in January and 1424 in July this year.
"I accept that we have too many people in prison," he told AAP on Thursday.
He said it was true that by the time a new prison was completed in 2014, it would already be full.
"With the current projections that's probably close to the truth," he said.
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The Darwin Correction Centre is currently at 110 per cent of its capacity, with 776 prisoners being held in cells that were designed to hold 745.
"We could go up to about 135 per cent of design capacity before it becomes a substantial issue," Mr Elferink said.
But he said the government was running programs to help prisoners prepare for a life after jail, such as Sentenced to a Job.
There are 64 low-risk prisoners who are currently in fulltime work.
They pay $125 a week in board to the prison, and pay 5 per cent of their income into a victims' assistance fund.
When they leave jail, they keep their job and take with them a start-up fund of $15,000 to $20,000 of savings from their work, which is held in a trust fund for them until their release.
Mr Elferink said justice reinvestment was "a noble ideal" but that the NT first had to deal with the issue of passive welfare, which he said was primarily funded by the federal government.
"The welfare system underwrites so much bad behaviour in this community," he said.
