The deal paves the way for greater private sector opportunities in the country's prisons market.
The ten-year contract will bring "fresh ideas" to the country’s promising PPP market, said Corrections Minister Judith Collins.
"The appointment of Serco as the contract manager for the project will bring in international best practice which will benefit the entire corrections sector," she added.
According to a spokesperson at Serco, the contract is valued at around US$300m (NZ$400m) and will commence operation fully by August 2011.
The New Zealand government is also currently considering bids for the country's first design, build, finance and maintain PPP prison in Wiri, South Auckland.