The Tasmanian Aboriginal Legal Service has commended the Tasmanian government's decision to abandon construction plans for a prison in the north of the state.

Following consultation, the government said it would not proceed with the planned Northern Correctional Facility, instead prioritising the "modernisation of existing facilities, expanding rehabilitation and reintegration programs" and the "updating operational systems to better serve the community".

Tasmanian Aboriginal Legal Service (TALS) chief executive Jake Smith labelled the government's decision not to build the Northern Prison and instead divert funding towards programs designed to improve rehabilitation and reintegration opportunities as "extremely important".

"It's great to see the Tasmanian government is not going to build another prison and fill it as they have previously done," Mr Smith said.

"By investing in rehabilitation, reintegration and supporting those within the system, there will be greater opportunities for improved outcomes for those in prison and in the community."

Mr Smith said TALS had been advised by the Department of Justice Acting-Secretary, Kristy Bourne that funding will be diverted specifically for training and activities for Aboriginal prisoners.

"Greater supports are required for Aboriginal people in custody. The current level of funding falls well short in meeting the needs of the Aboriginal prison population," he said.

The latest Closing the Gap data shows Aboriginal people are vastly overrepresented in Tasmanian prisons, with an Indigenous incarceration rate of 810.6 people per 100,000, compared to 156.2 per 100,000 for the non-Indigenous population of the state.

The same can be said for Aboriginal youth in Tasmania, with an incarceration rate of 49.9 per 10,000, in contrast with a rate of just one per 10,000 for non-Indigenous children.

Mr Smith said the figures equate to a disproportionate representation, with Aboriginal people accounting for approximately 25 per cent of the Tasmanian prison population at any one time, compared to approximately five per cent of the Tasmanian population.

"The Tasmanian government is a signatory under Closing the Gap and target 10 specifically calls out a 15 per cent reduction of Aboriginal prisoners incarcerated by 2031," Mr Smith said.

"The productivity commissions dashboard of assessment of progress towards this target has Tasmania's confidence level as low and going in the wrong direction."

The Justice Reform Initiative, an alliance of Australians committed to reforming the criminal justice system, also supported the decision, saying no northern prison is "sensible decision for all Tasmanians" and one which should "act as a beacon for all Australian governments".

Justice Reform Initiative executive director, Dr Mindy Sotiri, said the Tasmanian government made the correct decision by recognising a new prison was not an effective use of taxpayer funds, instead investing in expanding reintegration programs and improving existing facilities.

"It is never too late to make a good decision, and we're glad to see the Tasmanian government pull the pin on a Northern prison before it was too late," Dr Sotiri said.

"This is the right decision because it recognises prisons come at enormous financial and social cost to the community."

Dr Sotiri said research suggests not only are prisons expensive to build and run, they cause harm, they entrench disadvantage, and they fail to deter or address the drivers of crime.

"The Northern Correctional Facility would have cost more than $270 million to build, but far more in operating costs and ongoing social costs by reinforcing the cycle of reincarceration," she said.

"The evidence is overwhelmingly clear - the solutions to reducing crime are not found inside prison, but are in the community.

"It takes real investment and hard work at the grassroots level with individuals, families and communities to address the drivers of crime, and that is where governments should focus their efforts.

"We call on other jurisdictions to take note of this decision and rethink their position on building new prisons."

Tasmanian Minister for Corrections and Rehabilitation, Madeleine Ogilvie, said the government's decision was a "strategic decision" supported by a five per cent decrease in Tasmania's prisoner population from its peak.

"The government will instead prioritise upgrading and enhancing Tasmania's existing correctional system and invest in rehabilitation opportunities and reducing reoffending rates, ultimately contributing to greater community safety," Minister Ogilvie said.

Ms Ogilvie said the government has seen the positive impacts of the programs and strategies in place in reducing reoffending and keeping Tasmanians safe.

"These include our technologically-advanced Home Detention Orders and Electronic Monitoring program," she said.

"By harnessing state-of-the-art monitoring technology, this program significantly enhances the safety of the community by allowing precise, real-time tracking of offenders through ankle-monitoring devices.

"This ensures that those on home detention are closely monitored, reducing the risk of reoffending and providing an extra layer of protection to the public."