Quick guide:

1.) Find one of several merchants selling a backpack (At "Illyn Doldran" in "Mel Senshir" the method seems to work for most players).
2.) Kill the respective merchant.
3.) Serve your prison sentence or break out of prison.
4.) After your sentence expires sleep for seven days.
5.) Visit the same merchant again (after seven days the merchant should respawn in the same place).
6.) The merchant should now offer another backpack for sale.

This procedure can be repeated several times until the desired amount of inventory space is reached.