NEW CASTLE, Ind. -- Indiana has reached an agreement with Arizona to house up to 1,260 of Arizona's inmates at a prison near New Castle, the Indiana Department of Correction said Monday.

Gov. Mitch Daniels told reporters Monday that the first prisoners will be transferred to the facility this week.

"That white elephant prison will now reach capacity, and we'll be able to hire a total of over 300 citizens in a community that could use the jobs," Daniels said.

The deal comes nearly three months after a plan fell through under which California would have sent 1,260 of its inmates to the New Castle Correctional Facility about 45 miles east of Indianapolis.

That plan was thwarted because of a lawsuit against California over the possible transfer, and a lack of inmates willing to volunteer to make the cross-country move.

In October, Daniels announced a contract between California and Florida-based GEO Group Inc., the company Indiana hired to operate the New Castle prison. He said 1,260 inmates would be transferred to Indiana in a deal that was to have created 200 Indiana jobs.

The deal was part of plans to alleviate prison overcrowding in California, and the Indiana prison was to be paid $63 per day to house each of that state's inmates, with $15 of that going to state government.

Indiana Department of Correction spokeswoman Java Ahmed said the New Castle prison, which opened in April 2002, currently houses 1,038 inmates, but has a capacity for 2,416, giving it room to accept out-of-state inmates.

"We're happy to help our correctional peers. There's lots of areas suffering from prison overcrowding," she said.