Inmates at HMP Kirkham, near Blackpool, Lancashire, have been told they could enjoy a whole day of freedom if they enter the 1-pound draw.
The raffle is open to the 590 prisoners held at the category D jail, which includes rapists, murderers and other violent offenders coming to the end of their sentences
However, to be eligible for entry in the draw, they must first volunteer to cook Christmas dinner for the elderly at the nearby Milbanke Day Centre.
The reward, which has been condoned by Justice Secretary Jack Straw, has angered the families of violent crime victims.
"They should not be releasing people on this basis. Prisoners shouldn't be rewarded for whatever they have done," the Telegraph quoted Patsy McKie, 62, who set up Mothers Against Violence after her son Dory was shot dead, as saying.
"Anyone could win that prize - even the most dangerous man who is coming to the end of his sentence.
"They should be looking at the individuals and whether they have been rehabilitated enough to be in the community and society," she stated.
HMP Kirkham, a former RAF training base, is an open prison for offenders considered to be low-risk, yet it has a serious problem with drug abuse and holds the dubious record of having more prisoners abscond than any other jail in the UK.
Almost 1,000 inmates have absconded in the space of five years, between 1998 to 2003.
Prisoners are released on license from the open prison as part of their rehabilitation, but this is the first time the prison has offered freedom as a raffle prize.
The concept is allowed under the Incentives and Earned Privilege Scheme, introduced in 1995, which aims to encourage good behaviour by allowing inmates certain privileges such as wearing their own clothes or watching TV in their cells.
However, even the Prison Officers Association has condemned the draw.
"I think, as a prison officer, prisoners buying raffle tickets with public money to win a day out where they can go out and enjoy themselves is fundamentally wrong," a spokesman said.
"I'm very disappointed if that's what is happening at Kirkham," he said.
Michael Jack, Conservative MP for Fylde, Lancashire, finds cooking a meal for the elderly a good idea, but he does not agree with letting them out of prison.
"I think the scheme to encourage prisoners to contribute to wider society through cooking a Christmas meal for elderly people who are considerably less well off than they are is a good idea," he said.
"But to then link it to time out of prison, I think is incorrect," he added.
A spokesman for the Prison Service admitted that the raffle has been planned, but denied there would be any risk to public safety.
"Public protection is our top priority and the rehabilitation of offenders is a vital part of this process," he said.
"HMP Kirkham holds low-risk prisoners in open conditions. All prisoners are rigorously risk-assessed before release on temporary licence and no prisoners are released if there are concerns for public safety.
"Only prisoners who meet the eligibility criteria are granted temporary release," he stated.