A PLAN to move the Central Mental Hospital to the site of a new super-prison has been abandoned in favour of using an existing psychiatric institution.

The Central Mental Hospital – which cares for mentally ill criminals and other patients who need a highly secure environment – will instead be moved from Dublin's Windy Arbour to the site of St Ita's Hospital in Portrane, the Sunday Tribune has learned.

A proposal to move the Central Mental Hospital to Thornton Hall, the greenfield site for a major new prison in North Dublin, had been controversial because it was seen as "criminalising" the mentally ill.

St Ita's was once one of the largest hospitals in the state, catering for upwards of 1,200 patients but numbers have dropped to less than 200 in a move towards community-based services.

It is understood the Department of Health is now studying proposals to sell what could prove the lucrative site at Windy Arbour and concentrate on the redevelopment of Portrane instead.

Meanwhile, Thornton Hall prison will not be built until 2015 at the earliest and is expected to remain in public-private partnership (PPP) as the government coffers are empty.

Justice minster Dermot Ahern could bring the new proposals about how to develop the prison to the cabinet as early as Tuesday.

He had been considering funding the project with capital from the National Pension Reserve Fund, but it is understood that he now favours PPP, meaning the government can pay for it over 25 years rather than paying a lump sum up front. "The money just isn't there to do it," said a government source.

The Irish Prison Service (IPS) last month broke off negotiations with the PPP consortium chosen to provide the prison at Thornton Hall.

The Léargas consortium was the preferred bidder in the competition to design, build, maintain and finance the jail. The prison service said that an evaluation of a final offer from Léargas concluded that it would not be affordable.

The prison service will now retender for a consortium to undertake the design and construction of Thornton Hall. The successful consortium will pay for the costs and receive fixed payments from the state.

"It will be re-advertised and we'll go back to the market. In the initial plans for the prison, it was going to be built with gold plating and all, with all the bells and whistles. But now, the economic climate has changed," said the government source.