The 60 open beds at Thorn Cross Young Offender Institution in Cheshire are used to house low risk prisoners, and help prepare them for release.
Young offenders using the places would have previously served time in a closed establishment, and are given a greater degree of freedom than other inmates.
The Youth Justice Board has decided to withdraw its funding for the places because of a lack of referrals. A spokeswoman said only a "handful" of the beds have ever been used, so they are going back into general Prison Service operation.
This will see them used to hold 18- to 21-year-old young offenders, in common with the rest of the prison.
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