Island Def Jam expects to sign imprisoned rapper Jamal “Shyne” Barrow to a $3 million record contract this week, a source familiar with the negotiations said.

Shyne, now serving a 10-year term for his role in a New York nightclub shooting involving Sean “P. Diddy” Combs, was expected to finalize the deal by the end of this week, according to the source, who spoke on condition of anonymity.

Shyne would be the first artist acquired by Island Def Jam Music Group since Antonio “L.A.” Reid took over as chairman in February.

The label plans to produce the album with material Shyne recorded before he began serving his sentence, the source said. The prospect of other releases from prison — some rappers have recorded albums over the phone or in visiting rooms — was unclear.

Shyne, whose deep voice has drawn comparisons to late Notorious B.I.G., is not slated to be released from the state prison in Dannemora, N.Y., before 2009.

The proposed contract includes a stipulation that Shyne’s albums would be released on an imprint called Gangland Records, the source said.

A spokesman for Island Def Jam parent Universal Music Group declined to comment. Calls to Shyne’s publicist were not returned.

Shyne’s career got derailed before it really got going. His self-titled debut album on Combs’ powerhouse Bad Boy Entertainment label was released in September 2000. He had a modest hit with the single “Bad Boyz,” and the album has sold more than 900,000 copies to date, according to Nielsen Soundscan.

But the following year, when he was 19, Shyne was sentenced to prison for his part in the 1999 shootout at Club New York.

Three people were wounded in the melee, which reportedly started after a patron insulted Combs, who was there with then-girlfriend Jennifer Lopez .

Shyne was convicted of gun possession and assault for firing a gun in the crowded club and hitting at least one person.

No charges were filed against Lopez. Combs and his bodyguard, Anthony “Wolf” Jones, were acquitted of gun possession charges.

Credit: AP