With warnings that prisons are nearing breaking point with thousands of riot-related inmates, this may seem a counter-intuitive time to close a jail.

But that is exactly what will happen to Latchmere House, an open prison on the border of Kingston and Ham, as well as Brockhill Prison in Worcestershire, later this month, with the loss of 377 places.

Built in the 19th century, Latchmere was used as a hospital treating shell-shocked officers during World War I, but gained lasting notoriety in the 1939-45 conflict.

Then known as Camp 020, it was used as an interrogation centre for captured German agents.

The site was not listed by the Red Cross, and the Geneva Convention did not apply to inmates because they were not classed as prisoners of war – an early echo of the CIA’s alleged ‘black sites’ today, perhaps.

However, monocled camp commandant Lt Col Robin ‘Tin Eye’ Stephens took a tough line against torture, believing it was not only immoral, but also produced less valuable intelligence.

MI5 used Latchmere House to interrogate and break captured Nazi agents, and turn some into double agents as part of its ‘double cross system’.

The security service’s official history confirms several Nazi leaders were held there, and local historians count Hitler’s deputy Rudolf Hess and William Joyce, better known as wireless traitor Lord Haw-Haw, among their number.

Documents released in 1999 show some 480 suspects passed through its gates.

The prison service took over the site in 1948, and it was used as a junior and senior detention centre, a young offenders’ institution and an immigration centre, before becoming a resettlement prison in 1991.

The plan was for inmates near the end of their sentences to be released for a number of hours at weekends to rebuild family ties, and then allowed to go to work daily – part of the effort to reduce reoffending rates.

Unsurprisingly, the plan for an open prison caused some anxiety among Latchmere’s neighbours, but in the two decades since, it has caused few problems in the north Kingston and Ham community.

Tudor ward councillor David Cunningham said: “At the beginning we were very concerned. I remember meeting the governor.

“But I have got to say we have not had trouble. The very little trouble we have had was not very significant, so I don’t think I would say we are happy that it’s going.”

The prison currently houses about 200 adult male prisoners, all from within the M25. At the end of last year, 17 were serving life sentences, although arsonists and sex offenders are not allowed.

Prisoners in the jail’s two accommodation wings are given keys to their rooms, although the wings are locked at 8.30pm.

The site includes four workshops, a kitchen, dining room, gym and aviary, and Tesco and Wagamama are among local employers who taken on some of the men.

According to its 2010-11 inspection report, 64 per cent of prisoners are in full time employment, above the 60 per cent target, and 34 per cent are in education or training, more than double the 14 per cent goal.

The inspectors wrote: “These figures are excellent. If prisoners leave Latchmere with paid employment or go on to further education and training, the chances of their not re-offending remain high.

“The present government believes in rehabilitation rather than imprisonment. A prison that succeeds in turning prisoners’ lives around, as Latchmere does, contributes to the rehabilitation process in no small way.

“More prisoners need to be given the chance to benefit from what Latchmere does.”

Indeed, the inspectors suggested spare space could be used for an extra accommodation block, and last year the governor submitted plans for an extra 20 places.

However, the idea was shelved because of the public finances and the Government’s desire to reduce prison places, despite the inspector’s belief that Latchmere’s work actually reduces prison numbers in the long term.

On July 13, Justice Secretary Kenneth Clarke dropped his bombshell – Latchmere House would be closed with just two months notice, despite his stated support for prisoner rehabilitation.

Rev Lesley Charlton, minister of the Kingston United Reformed Church, is vocal in her support for the prison’s work, and dismayed by its proposed closure.

She said: “I think it’s everyone’s interests that people who go to prison do not go back to prison, and anything we can do to minimise that is good news for all of us.

“Someone in prison costs society a fortune. There’s the cost of their accommodation, but also the social cost of someone being away from their family, not earning, not paying tax.

“[Shutting Latchmere] might well be a short term saving, but in the long term it’s going to cost us a lot of money.

“You could expect the good residents of north Kingston to be dancing in the streets, but they are not. They are not delighted it’s shutting.

“They did not know it was there. It was OK and did not get in people’s way. It’s been doing a good job, quietly.”

Last week the prison population of England and Wales hit a new all-time high of 86,821, leaving a spare capacity of 1,517.

A Ministry of Justice spokesman said it was developing contingencies to increase capacity if the prison population continues its recent rise.

However, when asked whether retaining the existing prison at Latchmere House was among them, his reply was unequivocal: “No”.

Thoughts are inevitably turning to what the future holds for such a valuable piece of land.

Kingston Council is investigating whether it could provide a site for the much-needed north Kingston new secondary school, while Richmond Liberal Democrats have called for the Victorian building to be given listed status.

However, new housing remains the most likely option.

Coun Cunningham said: “I can’t imagine for a moment that Ministry of Justice won’t go for a quick disposal. It’s obviously a prime residential area.

“It would be hard to imagine them resisting the obvious advantage to them of getting money quickly.”