A ban on smoking in all areas of jails in England and Wales is being considered by the Prison Service.
A pilot is expected to begin next year, with a ban likely by 2015.
It is thought the move is linked to potential legal action by staff and inmates who have suffered the effects of passive smoking.
Campaigners warn a ban would be difficult to implement and could have a destabilising effect, with an estimated 80% of prisoners thought to be smokers.
Smokers among the 84,000 inmates at prisons in England and Wales, where tobacco is used as currency on the wings, will be offered nicotine patches as a substitute.
A Prison Service spokesman said: "We are considering banning smoking across the prison estate and as part of this are looking at possible sites as early adopters."
According to a report in the Times newspaper, prisons in south-west England, including Exeter and Eastwood Park Women's jail, will be involved in the pilot in the spring.
Inmates are currently allowed to smoke in their cells but a ban would prohibit this and extend to all parts of a prison, including exercise yards.
Senior prison staff were said to have been informed of the move in a letter.
"You will no doubt be aware that the decision has been made that the time is right for the prison estate to adopt a tobacco and smoke-free policy to provide a smoke-free workplace/environment for our staff and prisoners," the letter, quoted in the Times, said.
The Prison Officers Association (POA) began campaigning for a smoking ban in all UK prisons in 2007.
It had expressed concerns about staff and prisoners "forced to suffer the harmful effects of second-hand smoke".
It came after smoking bans were introduced across the UK, to protect people from the effects of second-hand smoke in workplaces and enclosed public places.
The bans did not apply to prisoners as their cells were defined as "domestic premises", although non-smoking prisoners could not be made to share a cell with a smoker.
Guernsey Prison governor Dave Matthews told the BBC a smoking ban enforced earlier this year at Les Nicolles jail had "gone very well".
"We have removed tobacco but also provided prisoners with some assistance to try and give up their nicotine habit through the form of patches and the use of Quitline."
"For those who have decided not to (quit smoking)," he continued, "we have allowed them to purchase their own e-cigarettes, which deliver nicotine in a much safer way than normal tobacco does".
Guernsey and the Isle of Man were the first two European jurisdictions to introduce a blanket smoking ban in prison grounds.
Mr Matthews told the BBC there was a lot of negative response at first, "but that was understandable as people don't want to give it up".
'Pressure on jails'
POA general secretary Steve Gillan told the Times the union would work with the Ministry of Justice to make sure a ban "works effectively".
He acknowledged it "could cause disturbances" but pointed out a ban had successfully been introduced in young offender institutions in England and Wales.
Andrew Neilson, from campaign charity the Howard League for Penal Reform, suggested a ban would be difficult to enforce.
He told the BBC: "Prisons are going through unprecedented budget cuts, prison resources, staff resources have been cut. There may well be good intentions behind this policy proposal, but it will undoubtedly put a lot of pressure on jails which are already pretty stretched."
He added there could be a damaging effect in the short term on the mental health of prisoners "who are often very distressed".
Former offender Mark Johnson, chief executive of the charity User Voice, said there are "greater priorities" that need addressing in the prison system, such as rehabilitation.
He criticised the Ministry of Justice for "tinkering around" with the issue of smoking, which he believes is a human right.
He told BBC Radio 4's Today programme: "We've got a serious problem the way we have the rates of reoffending, and they sort of come up with... a PR line about something as minute as smoking in cells.
"We work in a number of prisons around the country and already in communal spaces smoking's banned. The only place that you can smoke is actually in your cell."
A ban on smoking in workplaces and enclosed public spaces came into effect in England in July 2007 following similar legislation in Scotland, Wales and Northern Ireland.