A 24-hour manhunt for a convicted murderer out on parole has finished in dramatic fashion, with police tracking down the man in inner-west Sydney.

Key points: Plain clothed police spotted the man walking along Church St in Petersham just before 5:00pm

Plain clothed police spotted the man walking along Church St in Petersham just before 5:00pm He was on parole but forcibly removed and discarded his electronic ankle bracelet

He was on parole but forcibly removed and discarded his electronic ankle bracelet He was taken to Newtown station for questioning after being arrested again

Plain-clothed NSW Police officers spotted Damien Anthony Peters — who was last seen at the Prince of Wales Hospital in Randwick about 4:15pm on Sunday — walking along Church Street in Petersham about 5pm on Monday.

He was handcuffed by two officers, with a police dog barking in the background.

Following his arrest, Peters was taken to Newtown Police station and later transferred back into the custody of Corrective Services.

The 50-year-old pleaded guilty to murdering and dismembering two of his lovers in 2001 and was given a 21-year sentence, but had been on parole since 2016.

He was living freely in the community while being tracked by an electronic advice, which he managed to remove.

Police said he would have needed "a great deal of effort" to take off the device and were informed immediately after Peters went missing from the hospital.

His monitoring anklet was found four hours later outside a monastery in nearby Kensington.

"Mr Peters was free to come and go to the hospital as he saw fit," said Detective Superintendent Rohan Cramsie.

"He was certainly not in anybody's custody at the time … we don't know at this stage what has been the catalyst for him to remove the bracelet yesterday. We just don't know."

Mr Cramsie said he did not believe Peters was a danger to the community, but that they were treating his parole breach seriously.

Two grisly murders

Damien Peters was jailed for murdering and dismembering two people in 2001. ( Supplied: NSW Police )

Almost 18 years ago, Peters stabbed Tereaupii Akai, 50, twice in the neck before cutting up his body and throwing it in a council bin.

About eight months later, Peters stabbed 57-year-old Bevan James Frost to death while giving him a massage, before cutting up his body.

Detectives investigating the disappearance of the two men found Mr Frost's remains in the bath when they went to Peters' flat.

He was jailed for 21 years, with a non-parole period of 13 years, in 2002.

Police said they were following several leads from people who called in with information about the escaped murderer.

Peters was described as being of Caucasian appearance, about 175 to 185 centimetres tall, with a muscular build and short brown hair.

He had a tattoo on his right upper-arm of a snake wrapped around a panther and tribal-style tattoos on his upper-left arm.

Police had urged people to not approach him and ring triple-zero if he's sighted.