The Government hugely underestimated the impact of its reforms which created the new Ministry of Justice and should have carried out a proper consultation, MPs said.
The Constitutional Affairs Select Committee said in a new report that the shake-up introduced by former Prime Minister Tony Blair in May caused a "highly undesirable public conflict" between ministers and judges.
MPs added that ministers appeared to have failed to have learned the lessons from the previous major constitutional reforms in 2003.
The Home Office passed responsibility for prisons, probation and sentencing to the new Ministry of Justice on May 9.
Committee chairman Alan Beith said: "As in 2003, the Government has manifestly underestimated the significance of the changes they were making. We have been left with a highly regrettable conflict between our senior judges and the minister who is statutory guardian of their independence, which could and should have been avoided."
He added: "Jack Straw needs to get to grips with this issue quickly. His predecessor set too many limits on the discussions with the judiciary over their concerns.
"The new Lord Chancellor will have to be much more open both to the strengthening of the position of the courts service and to having an inquiry into its status."
The report said the changes were far more than a mere technical change to the machinery of government, and there should have been consultation and debate about the plans both in Parliament and outside.
The Lord Chief Justice, Lord Phillips of Worth Matravers, has indicated major concerns among judges that courts funding will be raided by the new Justice ministry to fund the crisis-hit prisons.
It emerged that Lord Phillips, the most senior judge in England and Wales, first learned of plans to create a Ministry of Justice when he read about it in a Sunday newspaper. Judicial demands for a ring-fenced budget were rejected by former Lord Chancellor, Lord Falconer, and his successor Mr Straw has also expressed doubts about the workability of a protected budget.