Interserve had been due to start construction of the PFI project in the first part of this year, but now the design and build scheme will be retendered.

The decision is a setback for Interserve, which had been lined up for the project as preferred bidder.

Interserve had already submitted detailed plans for the 1,600-inmate Category C prison project, which was to be built on the site of the demolished former young offenders institution.

A source at the MoJ said the project had been placed in a procurement review following the Government’s decision to kill off PFI and was not related to Interserve’s financial problems.

It has not yet set a date for when the invitation to tender will be published.

Glen Parva is one of two new-build prison projects planned by the Government.

It will involve building six four-storey house blocks and 11 other ancillary buildings on the site.

Kier is on board to build the other new prison planned at Wellingborough in Northamptonshire.

This project is understood to be worth around £240m with work scheduled to get underway next month.