A damning report into a young offenders institute near Wolverhampton has found violence levels too high, inefficient security and drug usage among inmates three times above target.
Brinsford Young Offenders Institution was visited in November.
Chief Inspector of Prisons Nick Hardwick said inspectors uncovered the worst overall findings since he took up his post in July 2010.
Prison bosses said a new governor had been appointed to address concerns.
'Seemed overwhelmed'
Mr Hardwick said Brinsford, which is next to two prisons - Oakwood and Featherstone - and holds young men aged between 18 and 21, had deteriorated in almost all respects since its last inspection in 2012.
"This is an establishment that needs significant improvement," he said.
"When we spoke to staff and managers they were aware of the problems but seemed overwhelmed, and they lacked a plan or the determination to begin to get to grips with what needed doing."
The report said structures to tackle bullying "lacked rigour" and said there was insufficient work or activity for inmates.
It highlighted "squalid" and "dirty" cells "unfit for occupation", covered in graffiti with window panes missing.
Almost 12% of inmates tested positive for cannabis, almost three times higher than the target of 4.5%.
But it praised health services and said they were "probably the best feature of the institution".
Mr Hardwick said: "We found so much wrong with Brinsford that it is going to take time to improve, but stronger leadership and capability from managers, along with a better approach and greater professionalism from staff, would be a start.
"It was appropriate that a new governor was appointed shortly after the inspection. He has made a vigorous start on making the necessary improvements but it is still very early days."
'Rapid progress'
National Offender Management Service chief executive Michael Spurr said Brinsford had a "challenging population" at the time of the inspection and was struggling to cope. He said performance had "deteriorated to an unacceptable level".
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