The Tories wanted to sell up to 30 jails and use the proceeds to fund 5,000 new prison places, bringing the prison population to a historic high of 100,000.

The plans included the sale of Kirkham to private developers and replacing it with a newly built jail elsewhere in the region.

After learning of the proposals last month, Coun Liz Oades said Kirkham Town Council Council would request an urgent meeting with Kirkham's governor.

And she told the Express this week: "We met the governor and he said he was not aware of any plans to change Kirkham Prison after all.

"We had quite a good discussion and built even closer links. The governor again expressed his desire to work closer with the town council and the town particularly with projects with them."

She said she was delighted with the decision and added: "They are very, very helpful to us."

Labour has accused the Conservatives of a "huge U-turn" and said their policy was "incoherent".

A study by David Cameron's favourite think-tank pinpointed Kirkham open prison along with nine other jails that are on prime sites with high land values.

However, the Tories now say that the recession and property slump means that sites could only be sold for "rock bottom prices" at present.

They say they will create enough new places to end the Government's controversial early release scheme but will not commit to the 5,000 figure.

The position is a major change in direction, given that only last month a spokeswoman insisted that the policy remained sound and stressed that while sale values for existing prisons may have fallen during the economic down-turn, so too will the cost of potential new prison sites.

Prisons minister Maria Eagle said: "This is a huge U-turn from David Cameron and their justice team."

The Tories say that they have drawn up a "back-up plan" to convert some former army barracks into jails and turn some open prisons into closed category C jails.

But a spokeswoman said no decision had been taken on how many open prisons to convert and stressed that no list has been drawn up.