The state has begun in recent weeks the most significant changes since the 1970s to reduce overcrowding — and chip away at an astonishing 70 percent recidivism rate, the highest in the country — as the prison population becomes a major drag on the state’s crippled finances.

Many in the state still advocate a tough approach, with long sentences served in full, and some early problems with released inmates have given critics reason to complain. But fiscal reality, coupled with a court-ordered reduction in the prison population, is pouring cold water on old solutions like building more prisons.

About 11 percent of the state budget, or roughly $8 billion, goes to the penal system, putting it ahead of expenditures like higher education, an imbalance Gov. Arnold Schwarzenegger has vowed to fix.

The strains on the system are evident inside the state prison here, about 50 miles north of Los Angeles, where 4,600 inmates fill buildings intended for half as many. A stuffy, cacophonous gymnasium houses nearly 150 people in triple-bunked beds stretching wall to wall.

The new effort this year is intended to remove from prisons criminals who are considered less threatening and divide them into two categories: those who pose little or no risk outside the prison walls, and those who need regular supervision.

The goal is to reduce the number of inmates in the state’s 33 prisons next year by 6,500 — more than the entire state prison population in 2009 of Nebraska, New Mexico, Utah or West Virginia. In all, there are 167,000 prisoners in California.

“People in the criminal justice world are looking at California with great interest,” said Jeremy Travis, president of John Jay College of Criminal Justice in New York. “Some very important reforms are under way.”

The effort, narrowly approved by the Democratic-controlled State Legislature and signed into law by Mr. Schwarzenegger, a Republican, will be achieved through a range of steps long recommended by independent analysts and commissions.

To slow the return of former inmates to prison for technical violations of their parole, hundreds of low-level offenders will be released without close supervision from parole officers. Those officers will focus instead on tracking serious, violent offenders.

Some prisoners may also be released early for completing drug and education programs or have their sentences reduced under new formulas for calculating time served in county jails before and after sentencing.

The effort represents a “seismic shift,” said Joan Petersilia, a criminologist at Stanford Law School and a longtime scholar of the state’s prisons.

Public safety concerns have other states rethinking their decisions to save prisons costs by releasing inmates early and expanding parole.

The same red flags are being raised here, but the overcrowding problem dwarfs that of any other state and the budget deficit — $20 billion and climbing — has left lawmakers with virtually no choice but to move ahead.

The Schwarzenegger administration has floated a number of other ideas to reduce costs, including building prisons in Mexico for illegal immigrant offenders, turning over prisons to private contractors and, last week, having the University of California handle inmate health care.

The release of prisoners in California has stirred a backlash. Several hundred inmates at county jails were released in the last couple of months because of confusion over time credits in the new law.

Attorney General Jerry Brown, a Democrat who is running for governor, issued a directive clarifying the law, but not before one inmate in Sacramento was arrested shortly after his release and charged with attempting to rape a woman. The man had been released on probation after serving time on an assault charge.

That case prompted several lawmakers to call for abandoning early releases. And crime victim and law enforcement groups have been sounding alarms about what they consider the dangers of not more aggressively tracking the low-level offenders.

“We are concerned about victims these felons will leave in their wake before being rearrested for committing new crimes,” said Paul M. Weber, the president of the Los Angeles police union.

Proponents, including Mr. Schwarzenegger’s corrections secretary, Matthew Cate, have stood by the law, calling it overdue and necessary. The state spends, on average, $47,000 per year to house a prisoner. Early estimates suggest the new changes could save $100 million this year.