"No one should be under any illusion how dangerous the abuse of any drug is. We are determined to make sure governors have every power at their disposal to detect supply, punish those found using or dealing, and enforce a zero tolerance approach," Grayling said.
"Prisoners should be very clear – if they think they can get away with using these substances, they need to think again. And the same applies to those who are the suppliers, whether they’re inside or outside the prison gates," he added.
Offenders could be banned from any physical contact with visitors, placed in higher security prisons and confined to their cells for up to 21 days.
They could also be made to spend up to 42 extra days in prison and be segregated from other prisoners.
Additional punishments could include forfeiting all money that prisoners earn through work while in jail for up to 84 days.
The Ministry of Justice is especially concerned about the growing use in prisons of new legal high drugs such as "Spice", also known as "Black Mamba", which will be detected with the help of sniffer dogs.
Nick Hardwick, the Chief Inspector of Prisons, described Spice as the "drug of choice" among inmates; the substance fuels violence and disruptive behavior in prisons in England and Wales.
The Ministry of Justice is set to empower prison governors with the ability to enforce the new measures before the end this month.
