Director of ACT Corrective Services Jon Peach declared the emergency on Wednesday, the first in the prison's 11-year history, because "we remain concerned that the entire contents of that parcel may not yet have been discovered".

During questioning at an assembly hearing, Mr Peach said guards were now combing through every inch of the jail to find the missing contraband, which under a "worst case scenario" could include firearms.

On Monday, during a routine patrol, guards discovered a hole cut into an outer fence. The jail was immediately locked down and a roll-call of prisoners confirmed no one had escaped.

But Mr Peach said a perimeter alarm had gone off earlier on the Sunday about 5pm and an internal investigation was now underway to determine "where our procedures did or didn't fail us".

An escape attempt has since been ruled out and a review of CCTV footage revealed a "member of the public" throwing a parcel into the prison yard through the hole, Mr Peach said.

While some items of contraband have since been found, the package itself has not.

The emergency could lock down the prison for the next three days and keep detainees in their cells for as long as 23 hours a day.

During that time, work and activity in the jail can be restricted and prisoner communications with "anyone else" including legal counsel cut off, though a government spokeswoman said court appearances and healthcare albeit "with a greater focus on urgency" would continue. Non-essential visitors will not be able to enter the jail during the emergency.

READ MORE: Hole found in prison fence likely corridor for contraband

Methamphetamine and mobile phones are the two most common and sought-after contraband items seized within the jail but an emergency of this nature suggests that weapons may be involved.

Authorities said they would not reveal the nature of the contraband for security reasons.

"All contraband has the potential to cause harm...and we take all such incidents seriously," the government said. "The safety of detainees, staff and community members is absolutely paramount."

Canberra police did not say if they were investigating the incident but the government said it was working closely with ACT Policing and the prison watchdog had been notified.

Julie Tongs at Winnunga Aboriginal Health Service said her own team were now trying to sort through how to manage their medical appointments within the prison.

"I get this is the first time it's happened but you don't want people's health compromised," she said. "If they spent more money on meaningful things for [prisoners] to do out there, we probably wouldn't be in this mess."

Canberra Liberal Giulia Jones described the emergency as "highly disturbing" and said she had grave concerns for all inside.

In an incident that may be unrelated, firefighters were called to an incident at the Alexander Maconochie Centre about 10.30am on Wednesday.

A spokeswoman for the ACT Emergency Services Agency said the fire was not believed to have been suspicious nor started deliberately.