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.
Dally was declined parole on Tuesday because he remained an undue risk to the safety of the community, the board said.
A psychological review spanning two decades found Dally had a history of "coercive and sadistic sexual practices".
"Mr Dally's presentation to the Board today, whilst measured and polite, left us with concerns as to his true insight into his crimes," Parole Board chairman Warwick Gendall said.
"It is worrying that he acknowledged in answering questioning by the Board that he enjoyed the event and the circumstances of his crime, and the control he could exercise on the child during his dreadful offending."
An earlier report found Dally did not appear especially remorseful, with him saying he had dealt with most of his guilt a long time ago.
The "remorse" he expressed in 1990 actually referred to the distress caused by the loss of his own family, the report found.
"That was 'regret' or 'pity' related to what he himself had lost, not remorse for killing the victim," Mr Gendall said in his decision.
While a high profile offender, Dally was also described as a compliant and polite inmate, who was drug-free and had been working at an offenders' nursery.
He completed a child sex offenders programme at Te Piriti last year.
The most recent opinion expressed by a psychologist, which argued that after 25 years in prison, Dally had done all the programmes available to him and was no longer a high risk psychopath, was "highly optimistic", Mr Gendall said.
"Mr Dally has been identified as having a high psychopathy score associated with sadistic sexual practices ... we see him as still an undue risk of serious violent and sexual offending."
Dally's next parole hearing is set to take place in a year's time, but this could be postponed for up to three years.
Postponements are made in cases where the Parole Board feels no significant change can be made in a single year.
The board did not make any other recommendations, other than it did not endorse home leave.
Dally first became eligible for parole in August, 1999.
Meanwhile, Karla Cardno's own father is still in jail for crimes against a teenage girl.
Gary John Duffin was sentenced to nine years in prison in 2010 after a High Court jury found he and his wife Sharyn Lee Hills were guilty of raping a 14-year-old girl who worked for them as a prostitute.
Duffin was denied parole when he appeared before the Parole Board at Rimutaka Prison in September last year.
