The Palmerston watch house, north of Darwin, will be handed over to the Department of Corrections to house an overflow of prisoners for the "foreseeable future," according to the territory's chief minister.
In October the Country Liberal Party repealed bail legislation to ensure anyone committing "serious crime" would face jail time.
Those laws came into effect on Monday when seven bail applications made in the courts on the same day were denied or referred for assessment.
"We're building contingencies in a broken system," Chief Minister Lia Finocchiaro told reporters.
"We're ensuring that police operations are uninterrupted as Declan's Law ramps up and we start to see more people who should not be out on our streets in prison."
The murder of bottle shop worker Declan Laverty by a man on bail sparked public outcry and tougher laws.
The bail changes coincide with the territory hitting a new high of 2628 prisoners, more than one per cent of the NT's entire population.
While numbers inside jails climb, almost 263 people have crammed for weeks inside police watch house cells.
"We're building contingencies in a broken system," Chief Minister Lia Finocchiaro said. ((A)manda Parkinson/AAP PHOTOS)
Police Commissioner Michael Murphy said housing prisoners in watch houses was increasing pressures on police duties.
He said the practicality of having both corrections and police in the same watch house was that they operated under disparate models.
"We're dealing with people who might be affected by drugs and alcohol sometimes or other times angry," he said.
"And working in a busy environment with actual business (to do) in there is quite difficult."
Justice groups and the NT Ombudsman, the watchdog for ensuring human right are upheld in detention, have condemned the use of watch houses.
Former NT ombudsman Peter Shoyer wrote in his annual report that the "trajectory of prisoner numbers" will put further pressure on "ill-equipped police watch house facilities".
Justice groups and the NT Ombudsman have condemned the use of watch houses as prisons. ((A)manda Parkinson/AAP PHOTOS)
"We noted there has been minimal change to address our observations regarding flaws in the facilities' infrastructure, which severely limit their ability to meet minimum human rights standards," he wrote.
Nyikina woman and founder of NAAJA Natalie Hunter said Aboriginal people have tried to reason with the NT government for years.
"We have tried to make them see sense, repeated the same facts and statistics, and explained the evidence," she said.
"In the Northern Territory, Black children are dehumanised at every turn."
Ms Hunter's newly formed grassroots organisation, Justice Not Jails, said the NT prison system is notoriously overcrowded, presenting serious physical and mental health risks to prisoners.
The chief minister and police commissioner both said they expect prison numbers will again climb in coming weeks.
"Our policing activity has increased, we won't be ceasing policing activity," Mr Murphy said.
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