Building the new jail in the Latrobe Valley would create jobs during construction and when it was in operation, "which are desperately needed," he said.

"There is substantial land that's not within town boundaries where you could build such a facility," he said.

"It would be a massive boon for jobs and economic development in the region when we need it."

His comments come amidst community concern about the imminent closure of the Hazelwood power station and coal mine, which will cost the region hundreds of jobs. Some towns in the Latrobe Valley already suffer from an unemployment rate of more than 10 per cent.

The comments also come as Latrobe Valley residents urge the state government to deliver significant projects and jobs to the district, including the relocation of government offices, to help cushion the local economy from the closure of Hazelwood.

But Mr Northe, a Nationals MP who has represented Morwell since 2006, said community consultation was essential if the government was to consider building the new $288 million jail in Gippsland.

"They have to get their consultation right. If they were to consider it (for Gippsland), my desire and expectation would be that they would consult with council and the community in the first instance," he said.

"I've been approached by quite a few people within our community who have raised the same question, 'Why couldn't it be built in the Latrobe Valley', particularly to enable us to hopefully create jobs during the construction phase, but also to create some of those longer term jobs which are desperately needed within this community," he said.

Mr Northe said the Fulham prison, about 45 minutes east of Morwell and in a neighbouring municipality, was an important contributor to the Gippsland economy.

Fulham provided "great employment opportunities for many people within the region, and indeed there are a lot of Latrobe Valley residents who work at that facility," he said.

News that the state government plans to build a 224 bed juvenile jail in Werribee South, to ease the pressure on the youth justice system, has prompted an angry response from locals who vehemently oppose it being built in their neighbourhood.

Early this month one local resident, Lisa Heinrichs, told The Age the decision was "political suicide" for local MP and state Treasurer Tim Pallas.

And recently thousands of people attended a community meeting to protest against the government's decision.

But in country Victoria, towns that are home to jails seem to be grateful for the employment that they deliver and the economic benefit they provide to the community.

Elizabeth Mason, president of the Beechworth & District Chamber of Commerce & Industry, said her community had a "very positive relationship" with the local jail.

"We've had a jail for many generations, so our community is very receptive to having a jail in their community. They see the positives," she said.

Ms Mason said the prison gave locals secure full-time jobs, and gave local businesses opportunities like maintenance work and the supply of resources.

"It has a huge economic flow-on to our community," she said.

Acting Minister for Families and Children Martin Foley defended the Werribee South decision.

"The preferred Hoppers Lane site has links to transport, roads and services, and also has a buffer from residential areas," he said.

"The selection of the site was based on a detailed assessment made through a full business case, which examined a number of other sites against the same criteria.

"The government will continue to evaluate regional locations for future purposes as different facilities have different requirements.".