In 1989 Dally snatched Karla from her bike as she rode home from the local shops, dragging her to his house and repeatedly raping and torturing 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.
In July last year a psychologist was engaged to review Dally's risk of reoffending and to make recommendations for his future management.
A "comprehensive" report was presented to the board before Dally's hearing this month.
In the report the psychologist discussed "in some detail" Dally's offending and his explanations for it.
"He reports that Mr Dally still thought of his offending as a random act of violence and did not acknowledge the obvious premeditation involved," board convenor Justice Marion Frater said.
"Today, Mr Dally acknowledged that his offending was primary sexually motivated, but denied that there was any sadism involved, and again tended to minimise the nature of the sexual offending."
Dally is being held in a specialised unit in prison but plans have been made for him to move to a general population area and to complete qualifications.
The board said Dally "has displayed very limited insight into some aspects of his offending, but that he has significant personality traits which are unlikely to change in a genuine manner with further treatment".
"There is no question of parole today or in the foreseeable future," said Justice Frater.
"Parole is declined. Mr Dally's next hearing will be in November 2017. We gave him notice that if the Board declines to release him on parole at that stage they will also consider whether or not to make a postponement order of up to 5 years duration. He will be given formal notice of his rights in relation to that matter prior to the next hearing."
