Mt Eden prison Photo: RNZ / Diego Opatowski
The new Corrections Minister, Judith Collins, said the funding would address the cost of the greater than expected prison population growth and improvements to electronic monitoring.
Corrections has been under fire for a string of incidents, including the escape of convicted murderer and paedophile Phillip John Smith, fight clubs and assaults at the formerly Serco-run Mt Eden prison, and criticism about young prisoners being locked up for 23 hours a day.
Ms Collins said the number of prisoners has been increasing at a rate consistently above forecasts, despite significant progress in reducing crime.
"In October 2015 the prison muster was 800 higher than at the same projected point in the 2011 Justice Sector forecast. This is equivalent to a large-sized prison.
"The number of prisoners reached a record high of 9171 on 30 November 2015 and currently sits at 8968."
Most of the extra funding - $15 million - would be used to address prison population growth, while the remainder would go to improvements to the electronic monitoring system.
A 24-hour GPS Immediate Response Team as well as an Electronic Monitoring Assurance Team had also been establised.
There have been a number of cases this year where offenders have removed their electronic monitoring anklet.
In August, convicted child sex offender Daniel Livingstone was on the run for about two days after removing his anklet.
In the same month another sex offender in the Wellington region who cut off his electronic monitoring bracelet was captured by police after being on the run for less than a day.
In September, high risk sex offender Patrick McGreevy removed his anklet.
The government said funding for the monitoring of returning offenders from Australia would also be considered as part of the 2016 budget.
Listen to Corrections Minister Judith Collins