His last parole attempt in 2010 was refused.
Dally was sentenced to life in prison in 1990 after snatching 13-year-old Karla from her bike as she rode home from the local shops, dragged her to his house and repeatedly raped and tortured her for 22 hours.
He later put her naked, bound and gagged in the boot of his car and buried her alive in a shallow grave at Pencarrow Head.
Former Detective Senior Sergeant John Marsden, who led the investigation, earlier said 23 years in prison was not too long for someone with Dally's offending.
"I've been out of touch of course for many years and I don't know what sort of rehabilitation he's been through,'' Mr Marsden told Radio New Zealand this morning.
"But for anyone to have committed the crime under the circumstances he did ... I don't believe he's in the right state to come out this time.''
Karla's stepfather Mark Middleton told 3 News yesterday he believed Dally was as dangerous as ever.
"For those people who think he's done his time and should be let out, perhaps invite him to their family, their daughters, bounce their kids up and down on his knee and see what they think,'' he said.
Mr Middleton was convicted in 1999 for threatening to kill Dally if he was freed from prison.