After more than 21 years in prison, a man who murdered a Dunedin woman is now a minimum-security inmate working as a cleaner in a jail's admin building.

Gareth Lawrence Smither (46) was jailed for life after being found guilty of the murder of Karen Jacobs.

Smither used knives and a spade to kill Jacobs at her Dunedin home in July 1997 while her 2-year-old daughter, Georgina, was in the next room.

Her battered body was found by her mother, Maureen Watson.

The victim's family asked for privacy after the recently-released Parole Board decision but had previously voiced their desire for the killer to remain behind bars.

Smither, who is currently in Christchurch Men's Prison, came before the board at the end of May when he was again denied early release.

He has been eligible for parole since 2007 but the board said his release "remains some time away".

Smither had been a minimum-security inmate since the start of 2017 and was working in a "trusted position'' as a cleaner in the administration building, which was outside the main prison wire, the board heard.

"Mr Smither is currently being tested in a range of situations," panel convener Marion Frater said.

"He is said to be managing well, living in a self-care unit with three other offenders. Nor are there any issues concerning his work.''

However, there were still mental-health concerns for the prisoner.

Smither reported "experiencing low mood and suspiciousness"' after his medication was reduced and the Parole Board recommended he regularly see a forensic psychologist.

There was discussion of supervised day parole and guided releases, where he would go shopping for the men in his unit.

But Frater said the central concern was Smither's psychological state.

"Until Mr Smither maintains a longer period of stable mental health, particularly when he is experiencing new situations and stressors, we cannot be satisfied that he has reached the point where he can safely be released," she said.

Smither will be seen by the Parole Board again in May next year.