Privately-run prisons have been dealt a blow by a report describing Ashfield young offenders' institution as the worst in Britain.

Ann Owers, the chief inspector of prisons, said Ashfield was badly failing its inmates.

The Youth Justice Board immediately announced it was removing all its inmates from the first privatised teen-jail.

Ministers will come under pressure to look again at the ten year-old policy of outsourcing prison services to the private sector, after the failure of Premier Prisons Services to meet the required standards.

Owers said her July inspection had found that Ashfield was "failing, by some margin, to provide a safe and decent environment for children".

Martin Narey, the prison service director general, said he would consider terminating Premier's 25 year contract to run the jail if standards were not improved.

"Sustained improvement is now vital if I am to be persuaded to leave the management of Ashfield in Premier's hands," he said.

"My best prison is probably a private sector prison. But Ashfield, by some measure, is the worst," he added.

The Youth Justice Board said it would no longer send new inmates to the Bristol based institution and that the 170 young offenders still there would be withdrawn as soon as alternative accommodation could be found.

The decision will cost Premier up to £500,000 per month in lost income, on top of fines totalling around £2 million to be imposed by the prison service.

Youth Justice Board chairman Lord Warner said that "matters will be expedited if the children's safety is at stake".

Owers' report found that Ashfield could not "confidently claim" to be meeting the standards set out in the Children Act.

"The prison service is committed to the principles of the Children Act, which requires that children should be protected from risk of significant harm," she said.

"We did not believe that Ashfield, at the time of the inspection, could confidently claim to be so."

The report was also critical of staffing in the institution.

"The majority of staff lacked the experience, confidence or skills to manage a difficult and demanding population, rather than simply reacting to it, or hoping it would manage itself."

Responding to the report, Premier's director at Ashfield, Vicky O'Dea, said: "The primary objective for Premier is to restore its good reputation."