The former prisons minister lashed out after it was revealed the early release scheme will be extended from 35 days to 70 days.
She said ministers should be looking to find emergency accommodation to house inmates “at all costs”.
Ms Widdecombe said she used a prison ship, Norwegian oil rig cabins and even considered a holiday camp to house convicts when faced with a similar situation in her former role.
“Simply sending out a message that says ‘our prisons are full’ and we’re therefore not keeping people in for the duration of their sentences, or we’re not sending people there at all, is an incentive to crime,” she told Talk Radio.
Asked if she approved of extending the early release scheme, the Reform UK member said: “No, I don’t. I was faced with exactly this situation when I was prisons minister and I didn’t start releasing people or telling judges not to send them to prison.
“What we did was to set up all manner of emergency accommodation – I brought in a prison ship from the United States. Labour derided it as the hulks but they then kept it for nine years. From Norwegian oil rigs we took portacabins, put them down in the lower security prisons for extra accommodation.
“Even, at one point, we were proposing to take over a holiday camp that just needed a secure perimeter around it.
“But it was a question of find emergency accommodation at all costs and focus on that.”
She added: “People want to be protected from crime and one of the ways you do that is to take frequent or serious offenders off the streets.
“If the message goes out that the sentence given is not necessarily the sentence you’ll serve then that is not an incentive.”
She said the last few months of a sentence is “important” for prisoners who have been inside for several years.
“Right at the end, if the system is working, you should be undergoing preparation for your release. That would be cut out and you’d suddenly find yourself on the street,” she warned.
The extension of the early release scheme will start on May 23 according to an email to prison and probation staff obtained by The Times.
Chief inspector of prisons Charlie Taylor told Times Radio: “What we’re seeing at the moment is an estate that is creaking at every level under enormous pressure from the sheer churn and numbers of people within the system.”
He said prisoners needed support “to begin to be rehabilitated” but “if they are simply left languishing in a cell, exposed to all kinds of drugs, further criminality, then the danger is actually they come out worse than they went in”.
That would result in “more victims of crime, more violence, more communities in mayhem”.
Mr Taylor said 24,000 more places were required by 2028 “and that just simply isn’t realistic in terms of building”.
Justice Secretary Alex Chalk announced in October that the Government would use the powers it has to allow the Prison Service to let some prisoners out of jail up to 18 days early to ease overcrowding.
In March, he extended the so-called end of custody supervised licence scheme “to around 35-60 days”, as Ministry of Justice (MoJ) statistics showed that prisons in England and Wales were still nearing capacity.
The Government insisted the measure would be temporary and only apply to “low-level offenders”..
The MoJ said that offenders freed early were under strict supervision.
A MoJ spokesperson said: “We will always ensure there is enough capacity to keep dangerous offenders behind bars.
“We are carrying out the biggest prison expansion programme in a hundred years, opening up 20,000 modern places, and ramping up work to remove foreign national offenders.
“To ease the short-term pressures on prisons, in March we announced an increase in the number of days governors could, under existing powers, move some offenders at the end of their prison term on to licence.
“These offenders will continue to be supervised under strict conditions such as tagging and curfews.”
