Kirkham Open Prison is to become a resettlement jail as part of a shake-up of the prison estate.
It is one of 70 resettlement prisons across England and Wales which will see the majority of offenders released from prisons in, or close to, the area in which they will live, Chris Grayling said.
Existing prisons up and down the country will function as resettlement prisons with a trial starting in the north west of England in the autumn.
HMP Preston is also named on the list.
The Justice Secretary plans to build a £250 million super-prison in North Wales, while he announced a raft of prison closures covering some 2,600 inmate places in January.
Mr Grayling said: “Rehabilitation in the community must begin behind the prison walls and follow offenders out through the gates if we are to stand a chance of freeing them from a life of crime.
“Currently a local area could expect to receive offenders from dozens of prisons across the country - this is hopeless.
“It is little wonder we have such high reoffending rates when you have a prisoner leaving HMP Liverpool, given a travel permit to get them home to the south coast, and then expected to simply get on with it.
“This approach is a significant step forwards in our reforms to tackle reoffending and lays the groundwork for building a genuine nationwide network of ‘through the gate’ supervision and support for all offenders.”
The Government wants every offender released from custody to receive statutory supervision and rehabilitation in the community.
The Offender Rehabilitation Bill currently before Parliament will extend statutory supervision to 50,000 short-sentenced offenders each year, who will serve their time in custody in a resettlement prison and come out to a tailored package of supervision and support.
Inmates serving longer sentences will be moved to a resettlement prison at least three months before the end of their time in custody.