A large men's jail selected among a group of "trailblazing" establishments in a Government shake-up has a "very serious" drug problem, an inspection report concludes.
The prisons watchdog raised the alarm about safety at HMP Holme House, saying violence had gone up since it was last assessed four years ago.
A survey by HM Inspectorate of Prisons (HMIP) found three in five inmates thought it was easy to get illegal drugs at the jail, while more than a third of drug tests were positive.
Holme House, near Stockton, is a category B facility holding just under 1,200 adult men.
It was designated as one of a group of six reform prisons described as "trailblazer sites" in a major overhaul unveiled by ministers in May last year.
The changes were intended to give more flexibility to governors.
Publishing the findings of an inspection carried out in July, Chief Inspector of Prisons Peter Clarke said: "The prison was not as safe as it had been and at the heart of our concerns was a very serious problem with drugs.
"The threat to the well-being of individuals was manifest and rarely have we seen so many serious and repeated incidents of prisoners under the influence of clearly harmful substances."
The inspectorate said mandatory drug testing results, finds and medical incidents indicated that new psychoactive substances (NPS) - which were previously known as legal highs - were "easily available".
Mandatory testing suggested a positive rate within the prison of 10.45%, which rose to nearer 36% when synthetic cannabinoids or NPS were included.
In a survey, 60 per cent of prisoners said it was easy to get illegal drugs, while more than a quarter (26%) reported they had developed a drug problem in Holme House.
Inspectors raised particular concern over the use of spice, a drug that mimics the effects of cannabis and has repeatedly been identified as a factor in surging levels of violence that have hit much of the prisons estate in England and Wales.
The assessment also flagged up examples of a young prisoner sharing a cell with an older inmate with no risk assessment of the arrangements.
"In one case, two sex offenders, one aged 20 and the other 62, had been located together," the report said.
Many prisoners had difficulty in accessing the basics of daily living - including bedding, clean clothes and cleaning materials - although the recent introduction of in-cell telephones was a step forward in supporting family ties, according to HMIP.
Despite high caseloads, support for drug and alcohol-addicted inmates was found to be "very good".
Michael Spurr, chief executive of HM Prison and Probation Service, said: "As the Chief Inspector says, the change programme at Holme House has been undermined by the illicit supply and use of psychoactive drugs, which is why addressing this problem is a top priority.
"The Governor has increased the number of security and searching staff and is working closely with the police to tackle supply.
"Work is also taking place with NHS England to reduce drug dependency and as a result, violent and drug-related incidents have significantly reduced over recent months."