Corrections is investigating allegations of gang members in Christchurch Men's Prison manufacturing motorcycle accessories and arranging for them to be taken off-site.
The prison's engineering workshop has been closed and police have been notified.
Custodial services commissioner Leigh Marsh said Corrections was carrying out a site-wide review as it investigated whether staff might have been involved.
"Following the arrest and subsequent charging of a Corrections Officer who allegedly attempted to introduce contraband into Christchurch Men's Prison in March, further investigations have uncovered potential unlawful activity involving gang members working in the site's engineering workshop," she said.
"This involved prisoners manufacturing items, believed to be motorcycle accessories, and arranging for them to be transported off-site.
"Any staff members identified as potentially being involved in unlawful activity will be subject to further investigation and may face police charges."
Two prisoners had their employment in the workshop terminated and their security classifications reviewed, Marsh said.
"This behaviour is not tolerated and we take any allegations of this nature extremely seriously."
March said prisoners would often go to extreme lengths to continue offending while in prison, and some prisoners placed a significant amount of pressure on people to continue carrying out their illegal activities in prison.
Police said they were aware of the matter and had no further comment to provide at this stage.
