Ministers must "get a grip" and deal with the problem of prisoners being held indefinitely after completing their minimum term, the Parole Board chairman has said.
Nick Hardwick said around 3,300 prisoners are still serving indeterminate sentences for public protection (IPP), with hundreds of them "years over tariff".
He added levels of suicide, assault and self-harm in prisons are also "unacceptably high", with a need to reduce the number of people in jail.
Mr Hardwick's warnings came amid concerns for James Ward, who was given a 10-month IPP sentence for arson but still has no release date after 11 years behind bars.
April Ward told the BBC her brother is constantly watched due to his self-harm, adding: "He's literally sat behind a cage like an animal where (other prisoners) walk past and point and laugh at him.
"How is that humane?"
She also said: "I know he's got the plan to kill himself if he doesn't get what he needs. If he doesn't get released I know, I can just see it."
The controversial IPP sentences were introduced in 2005 but scrapped in 2012 by then justice secretary Ken Clarke, who has described them as a "stain" on the justice system.
Mr Hardwick praised the bravery of the Ward family for raising their concerns, telling BBC Radio 4's Today programme: "There are about 3,300 IPP prisoners still in prison and 550 of them had an initial tariff of less than two years. Hundreds are years over tariff.
"We know IPP prisoners are three times more likely to self-harm as other prisoners.
"I think the Ward family was very brave in coming forward like they did, the description they gave of that young man in a cell which will have iron bars outside it, with an officer sitting outside the cell so s/he can constantly watch the prisoner inside, that's happening to hundreds and hundreds of prisoners and we know from the reports that are practically weekly on your programme that the prisons system is simply unable to care for prisoners with that level of need."
Mr Hardwick said problems were caused by administrative delays, including from the Parole Board, and the legal test which requires IPP offenders to show they do not pose a danger to the public before they are let out.
He said: "We need to get a grip on this problem."
Mr Hardwick reiterated his proposal that the onus should be on the state to prove IPP offenders with a prison sentence of fewer than two years are likely to commit a further offence.
He also said Michael Gove agreed to a series of changes but was sacked as Justice Secretary last year before he could implement them.
Mr Hardwick went on: "Every prison officer you've got on constant watch of looking at a prisoner in this situation is not somebody who is walking the wings, doing the rehabilitative work with other prisoners so those other prisoners are less likely to offend when they come out.
"The one thing we would all agree on, surely, is that we want prisoners to leave prison less likely to offend than when they went in.
"If we allow resources to be drained away in this way, to this extent, then it threatens the security of us all.
"We can do something about the IPP problem without compromising the safety of the public - which is our first priority."
Mr Hardwick said the state of prisons in the UK is "extremely worrying" due to staff shortages and an "unexpected spike" in the prison population which means the system is operating at "more than 99% of its maximum capacity".
The former chief inspector of prisons suggested there is a crisis in the prisons system, adding: "I'm not saying that I think there's going to be massive riots or that - I don't think that's possible to predict.
"What I am saying is simply the levels of suicide, assault and self-harm is unacceptably high.
"That's not the fault of the people who work in the system, it's the fault of political and policy decisions that should have been put right two years ago."
Mr Hardwick said ministers "now need to take action", with a need to reduce the prison population.