The board referred to a previous decision which described Dally as having a "potentially sinister combination of psychopathy and possible sadistic sexual practices".
"Mr Dally must receive assessment and treatment in the form of the TePiriti Child Sex Offenders Program."
Dally claimed to be "motivated" to attend and complete the programme.
"Time will tell whether such motivation is genuine," the decision said.
Karla's stepfather, Mark Middleton, said last week it was a "farce" that Dally was entitled to parole applications year after year.
"All of the hundreds of thousands of decent Kiwi people out there ... I haven't come across anybody who wants [Dally] in their neighbourhood. The man's too dangerous," he told RadioLive.
Dally was sentenced to life in prison in 1990 after snatching 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.
Middleton was convicted in 1999 for threatening to kill Dally if he was freed from prison.