The government is being accused of wasting $840 million on a prison it doesn't need.
Corrections Minister Anne Tolley announced on Tuesday the new Wiri Prison in South Auckland would be built by Fletcher Construction and operated by Serco under a public-private partnership.
The 25-year contract has been signed and Ms Tolley says the $840m cost is 17 per cent, or $170m, less than if it was built and run solely by the government.
The Green Party says it is "a colossal waste of money" in tight financial times.
Corrections spokesman David Clendon says the official prison population forecast is 8300 by 2016.
When the 960-bed Wiri prison opens in 2015 it will bring capacity to 10,800 - and that is after the planned closure of several older prisons.
"The argument that such a big prison is needed in Auckland doesn't stack up," Mr Clendon said.
"To make matters worse, it will be run by Serco."
The British-based company runs Mt Eden Prison and has fallen short on many of its performance targets.
A report in July showed only 28 per cent of prisoners had a management plan in place within the required time, there were three wrongful releases, three wrongful detentions and one escape.
Serco also fell short on other targets, including initial health screening, searches and incident notification, but exceeded targets for drug-testing and rehabilitation and reintegration activities.