He finally admitted this in a police interview in 2011, but later denied any part in it while in prison in 2014.
Ms Niethe's son, Dion Chamberlain, said in a victim impact statement during sentencing that Pakenham had put the family through extreme distress by not telling them she was dead.
The police offered a $20,000 reward for information on the 30-year-old's disappearance in 2003.
Mr Chamberlain said Pakenham's refusal to divulge the location of the body had worsened his grief.
"I want my mother back," he told the court.
Ms Niethe's best friend Rachel Mains said outside court in 2013 the sentence was too short.
She did not believe the killing was an accident.
"He meant to do it and I hope he rots."
The Parole Board has imposed special conditions on Pakenham's release, including a 10pm curfew for three months.
He is also forbidden to contact the victim's family.
Parole was granted despite the Board saying in their decision Pakenham was "dishonest" in pleading guilty to manslaughter "to avoid a murder conviction" and later denying the charge.
He had attended 12 sessions with a psychologist and a "reintegration hui" during his sentence.
"We accept that his violent offending has now been addressed in part...and because of this he is no longer an undue risk of re-offending," the Board said.