Prisons Minister Paul Goggins gave the assurance to MP Colin Burgon (Lab, Elmet) in a crisis meeting on Thursday.
Speculation had heightened this week that Garforth, East Leeds, was the Government's preferred site for a new super-prison.
As reported in Wednesday's YEP, Mr Burgon has said that "civil servants in the prison service have Garforth in their sights."
But he said: "Paul Goggins has told me categorically that the process of drawing up options is underway and no decision has been taken."
Garforth Residents' Association chairman Mark Dobson said: "We are prepared to accept this situation and keep campaigning towards a successful conclusion.
"Colin Burgon has been working extremely hard behind the scenes on this; we trust what he says and support him all the way.
"We know this could be a long haul and are prepared for that. We will campaign until the bitter end."
Mr Burgon said he showed the minister a leaflet distributed in the Garforth area by Leeds city councillor Andrew Millard (Con, Wetherby), which claimed Mr Burgon "had been advised" of the plan to build the prison in Garforth.
Untrue
He said: "When I showed Paul Goggins this letter he said he can categorically state this is untrue. There were two angles: that he has taken a decision and that I had been informed of it, both completely untrue."
But Coun Millard, prospective parliamentary candidate for Elmet, said: "The Prisons Minister could stop this in one fell swoop by saying the prison is not coming to Garforth.
"He has not done so. Mr Burgon realises he will have to take this to the Home Secretary, the minister's boss."
A Home Office spokesman confirmed: "The situation has not changed. The assessment process continues and no decision has been taken at this stage."
The site at the centre of the speculation is a former opencast mine to the north-east of Garforth, in between the A642 and the A1/M1 link road.
richard.edwards@ypn.co.uk

Residents forced to wait and see

IT has been a whirlwind week for the residents and politicians of Garforth, Leeds.
On Monday the official line – that no decision had been taken on the siting of a new "super-prison" – still stood.
By Wednesday, the temperature in Garforth was starting to rise when workers appeared at the site and Elmet's Labour MP Colin Burgon conceded that the town was in the prison service's sights.
By today, the official line had been shored up again, with both prisons minister Paul Goggins and the Home Office insisting no decision had yet been taken.
It is unlikely Garforth residents will take that to mean they are "out of jail", however. Widespread scepticism prevails – possibly because politicians are renowned for claiming decisions have not been made until the very last second.
But the insistence does buy Mr Burgon some much-needed breathing space and will help Garforth Residents' Association regain some momentum in its campaign against a prison.
That the issue came to a head was partly due to relentless pushing by Andrew Millard, Conservative councillor for Wetherby and prospective parliamentary candidate for Elmet.
A carefully worded leaflet, issued by Coun Millard in Garforth last weekend, claimed that the site shortlist was down to two – but did not say Garforth was one of them.
It also claimed Mr Burgon was being informed of the decision – a claim the MP strongly denies.
So far, Mr Burgon remains popular in Garforth, retaining the backing of the residents' association. That popularity could prove crucial as he fights to defend one of the country's most marginal seats.
As Britain gears up to go to the polls, he must be wondering how he has offended senior Labour figures to have this controversy dumped in his lap.
No doubt the Government planned to keep the Garforth bombshell quiet until after the General Election, but was unable to avoid the plans leaking out.
Conscious of the fight on his hands, Mr Burgon last month hosted a hastily-arranged constituency visit by Chancellor Gordon Brown. No doubt more Labour and Tory bigwigs will descend on Elmet between now and the election, expected on May 5. A bitter and entertaining electoral battle is guaranteed.

Idea dates back to 2001

The super-prisons idea was very much a New Labour project, first floated by the Government in 2001.
Then prisons minister Beverley Hughes was keen to see eight of the US-style institutions replace a number of Britain's ancient, crumbling, jails.
Armley Prison, in Leeds, was among those mentioned as a possible candidate for replacement when the plan was first mentioned.
Armley was one of six Victorian prisons once branded a "hell-hole" by former prisons director general Martin Narey.
The thinking behind the 1,500-capacity super jails was that they would take prisoners from an entire region, making it easier for them to stay in touch with their families and improving their rehabilitation. Relatives would find it easier to reach the prison, while the Home Office would have the possibility of saving money through economies of scale.