Ministers must "get a grip" and deal with the problem of prisoners being held indefinitely after completing their minimum term, the Parole Board chairman has said.
Nick Hardwick said around 3,300 prisoners are still serving indeterminate sentences for public protection (IPP), with hundreds of them "years over tariff".
He added levels of suicide, assault and self-harm in prisons are also "unacceptably high", with a need to reduce the number of people in jail.
Mr Hardwick's warnings came amid concerns for James Ward, who was given a 10-month IPP sentence for arson 11 years behind bars.
April Ward told the BBC her brother is constantly watched due to his self-harm, adding: "He's literally sat behind a cage like an animal where (other prisoners) walk past and point and laugh at him.
"How is that humane?"
The controversial IPP sentences were introduced in 2005 but scrapped in 2012 by then justice secretary Ken Clarke, who has described them as a "stain" on the justice system.
Mr Hardwick praised the bravery of the Ward family for raising their concerns, telling BBC Radio 4's Today programme: "There are about 3,300 IPP prisoners still in prison and 550 of them had an initial tariff of less than two years. Hundreds are years over tariff.
"We know IPP prisoners are three times more likely to self-harm as other prisoners.
"I think the Ward family was very brave in coming forward like they did, the description they gave of that young man in a cell which will have iron bars outside it, with an officer sitting outside the cell so s/he can constantly watch the prisoner inside, that's happening to hundreds and hundreds of prisoners and we know from the reports that are practically weekly on your programme that the prisons system is simply unable to care for prisoners with that level of need."
Mr Hardwick said problems were caused by administrative delays, including from the Parole Board, and the legal test which requires IPP offenders to show they do not pose a danger to the public before they are let out.
He said: "We need to get a grip on this problem."
Mr Hardwick reiterated his proposal that the onus should be on the state to prove IPP offenders with a prison sentence of fewer than two years are likely to commit a further offence.
He also said Michael Gove agreed to a series of changes but was sacked as Justice Secretary last year before he could implement them.
Mr Hardwick went on: "Every prison officer you've got on constant watch of looking at a prisoner in this situation is not somebody who is walking the wings, doing the rehabilitative work with other prisoners so those other prisoners are less likely to offend when they come out.
"The one thing we would all agree on, surely, is that we want prisoners to leave prison less likely to offend than when they went in.
"If we allow resources to be drained away in this way, to this extent, then it threatens the security of us all.
"We can do something about the IPP problem without compromising the safety of the public - which is our first priority."
Mr Hardwick said the state of prisons in the UK is "extremely worrying" due to staff shortages and an "unexpected spike" in the prison population which means the system is operating at "more than 99% of its maximum capacity".
The former chief inspector of prisons suggested there is a crisis in the prisons system, adding: "I'm not saying that I think there's going to be massive riots or that - I don't think that's possible to predict.
"What I am saying is simply the levels of suicide, assault and self-harm is unacceptably high.
"That's not the fault of the people who work in the system, it's the fault of political and policy decisions that should have been put right two years ago."
Mr Hardwick said ministers "now need to take action", with a need to reduce the prison population.
James Ward, who was jailed for 10 months and 11 years is to be released.
The family of a man who spent 11 years in prison even though he was jailed for 10 months have vowed to carry on fighting the rules that kept him inside.
James Ward was given an indeterminate Imprisonment for Public Protection (IPP) which meant he would only be released when officials deemed it safe.
The 32-year-old received the sentence because he had set fire to his bed while serving a one-year jail term for another offence.
April Ward told Sky News she couldn't stop crying after she heard her brother James was to be released
His family had made repeated pleas to the Parole Board to release him on the grounds of his repeated self-harm and mental health, but all of their requests were refused.
Ward was finally told he would be freed on Thursday morning, bringing an end to years of battling by his sister April.
IPPs were introduced in 2005 but scrapped in 2012 after then justice secretary Ken Clarke called them a "stain" on the judicial system.
© Sky News Screen Grab James Ward, who was jailed for 10 months and is still in jail after 11 years
Ms Ward told Sky News she was thrilled when she got the call confirming her brother was coming home.
"I just couldn't stop crying. I was just so overwhelmed with emotion," she said. "It's taken 12 years of hard fighting, for us as a family and for James. It was all emotions today."
Ms Ward said her brother is not planning anything beyond just being able to experience life outside prison - but they are determined to prevent others having to go through what they say they have suffered.
She added: "It ruins the good times, because even when you are trying to celebrate something, it was in the back of my mind that James was sat in a cell, or even in segregation or alone. That... has been absolutely heartbreaking.
"James dreams of walking down the street - the novelty of going to a park. His dreams are very small, as they would be if you had been in prison for 12 years. Together we'll make sure those dreams get bigger."
Ms Ward said she is going to "fight IPP to the very end" with her brother to help other families affected by these sentences.
In a letter sent to his family last year, James said he was losing hope of ever being released.
He had written: "I'm banged up in my cell, all that's in here is a bed, a cupboard, a toilet and a sink.
"I'm going crazy, mum, and I've had enough of this place."
The controversial orders were supposed to be for prisoners whose crimes were not deemed serious enough for conventional life sentences, but who were thought to pose a significant risk to the public nonetheless.
In August, the chairman of the Parole Board called for the Government to "get a grip" on the issue of indeterminate sentences - and criticised the "unacceptably high" rate of suicides, assaults and self-harm within prisons.
At the time it was thought that around 3,300 prisoners were still being held under IPPs, with hundreds of them "years over tariff".