The Justice Secretary wants a greater focus on education in prisons and more businesses working with inmates to help reduce the risk of reoffending when offenders are released.
Mr Gove said under the current system “we don’t devote nearly enough time to educating them” and giving prisoners the skills needed to succeed on the outside.
Under his plans Mr Gove could give governors new powers over budgets, education and even the perks offered to prisoners for good behaviour.
He is also considering extending a scheme under which inmates are allowed out of jail on licence in preparation for their release, The Times reported.
Mr Gove told the newspaper that “central to this job is making sure that people are less likely to commit crime after they leave prison”.
He said: “We are responsible for these people; we can determine what they do, who they see, what happens to them 24 hours a day and we don’t devote nearly enough time to educating them, to making sure that when they are being educated that they are getting the proper qualifications and providing them with the skills that they need in order to succeed in the world of work.”
His plans for “reform prisons” echo other public service shake-ups such as foundation hospitals or academy schools – championed by Mr Gove during his time in charge of the Department for Education – which have a greater degree of independence.
He said: “If you are a head teacher or an NHS manager, you have considerable freedom. The whole thrust of public service reform has been about giving more power to people at the front line and then holding them accountable for outcomes.
“The prison system is behind the curve. A great deal of what a prison governor does is constrained by very tight central regulation.”
Mr Gove encouraged governors to get more businesses working with inmates, praising the work done by key cutting and shoe repair firm Timpson.
“We should definitely have more businesses going into prisons – you could have businesses running in prisons. Timpson in some cases train in prisons, in another prison I visited they have a call centre. Some are conducting market research or answering queries.”
Mr Gove acknowledged that some central government involvement would have to remain in the system, on issues such as pay and security requirements.
“If the worst comes to the worst and something desperately bad happens – like a prison riot – there must be a national response.”
The Justice Secretary also confirmed he was looking at plans to sell off inner-city jails on prime land for development in order to fund more modern prisons.
Mark Icke, the vice president of the Prison Governors’ Association, said Mr Gove had not approached the organisation with details of his “blue sky thinking”.
He told BBC Radio 4’s Today programme: “We are very much guided by policy and central government. Prisons themselves, and governors up and down the country, do feel frustrated at times being almost handcuffed to certain policies.”
He said the education contract “really does tie some governors up because, in their establishments, it may not quite fit the need to the men and women in custody there”.
Mr Icke said: “The bit that’s missing at the moment and is passing everbody by is that when these men and ladies come into custody it’s not just education they need. These are complex individuals.
“It’s not like academy schools and NHS foundation hospitals where people want to access the service. They don’t really want to access our service.”
Shadow justice secretary Lord Falconer said: “Labour has long said that governors of successful prisons should be given greater autonomy so it is welcome that the Government has finally listened.
“We will look at the details of the proposals but it is important that this is introduced alongside a strengthened inspection regime, including regular, robust and unannounced inspections.
“The right conditions also have to be in place and prisons will never be able to rehabilitate offenders while understaffed, overcrowded and violent.
“Michael Gove must urgently address the crisis in our prisons.”