Areview of the country's prison system, ordered by UK justice minister Michael Gove last year, found extremist pamphlets and CDs in more than 10 jails in November.
"It uncovered misogynistic and homophobic leaflets, hate tracts encouraging the murder of apostates and ultra- conservative Islamic literature preaching contempt for basic British values," The Times reported.
The material was kept on bookshelves in prison chaplaincy rooms where it was available for anybody to come in and pick up, the paper reported, citing a Whitehall source.
The paper saidthe ministry is awaiting clearance from the Prime Minister's office to publish the report.
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Imams at several jails also encouraged prisoners to raise funds for Islamic charities with links to international terrorism, according to the review.
It warned that lax controls and failings at a senior level of the prison service had created a breeding ground for Islamist radicalisation, the paper said.
Jails in England and Wales held 12,328 Muslim inmates at the start of this year, of whom 131 were convicted terrorists and a further 1,000 were deemed vulnerable to radicalisation.
About 100 Muslim chaplains or imams are employed full- time in jails on salaries of up to 40,000 pounds a year.
The extremism review began in September 2015 and the 40,000-word report with 69 recommendations was presented to the justice secretary's office last month.