UPDATED 4.07PM: Private prison operator Serco's contract to run Mt Eden Corrections Facility will not be renewed.

LISTEN ABOVE: Political Editor Barry Soper joins Danny Watson to discuss the decision.

MORE: Labour's Corrections spokesperson Kelvin Davis speaks with Larry Williams

The company's contract is up for review, and Corrections chief executive Ray Smith has recommended that it should not be extended beyond next year.

Cabinet has now approved Smith's recommendation.

Management of the jail was taken off the company after a string of incidents including prisoner assaults and fight clubs earlier this year. 

Smith spoke to Serco's Asia Pacific chief executive last night, and the focus on both sides is to manage the transition carefully.

"This is a practical, logical next step that's available to us. We're taking it. They understand that. For all parties now, what's really important now...is that we want a safe prison."

Corrections Minister Sam Lotu-Iiga said it doesn't look as if Serco has grounds to challenge the decision, and it's response has been pretty much to accept it.

Smith reports either party can seek to break the contract at the six year mark.

"I think the contract's given us all the leavers that we needed and we're using them as appropriate," Smith said. "When you put these things together, one of the reasons you want a break point in it is because things do change."

The decision was made just prior to Judith Collins becoming Corrections Minister in Monday's cabinet reshuffle. 

Despite the ongoing Serco scandal, the government isn't entirely put off by the idea of private prisons altogether.

Prime Minister John Key's putting a positive spin on today's sacking of the British-based company from running the prison.

"In a funny kind of way it showed it worked because we got a contract, the contract allowed us to do something that could never actually do with a government department, and that is to say we're not going to renew that contract."

Meanwhile Finance Minister Bill English said the ongoing reports of what was happening in Mt Eden show one of the strengths of private management.

"You've got a strong transparent accountability regime around what happens in our prisons where they're privately contracted. It's not nearly as clear in the public prisons."

Lotu-Iiga agreed, saying the government remains "committed to the private provisions of prison services in New Zealand and Mt Eden is a separate case from Wiri, we'll be monitoring Wiri going forward clearly in terms of its performance."

But opposition MPs have been left flabbergasted by claims the ongoing problems at Mt Eden Prison show the system is working.

Labour's Corrections spokesperson Kelvin Davis said that's PR spin.

"I can't agree with him in any way shape or form that prisoner bashings and fight clubs in Mt Eden is a sign that privatisation is working."

Davis called it a humiliation for the government.

"This privatisation agenda of prisons has been an utter absolute shambles, a fiasco and an embarrassment to the government."

A report into the allegations against Serco can't be released because the company is challenging its release in the High Court. 

Spokesman for the No To Serco campaign John Palethorpe said the public deserves to know what the report says.

"Corrections have seen the report and seen that it's so bad they've terminated the contract, however we would still like to see the contents of that report to ensure that it doesn't get buried."