An Israeli judge has rejected a plea to drop the extradition case of a former principal accused of molesting students at an ultra-Orthodox Jewish school in Melbourne.

Key points: Former Melbourne principal accused of 74 counts of sexual assault

Former Melbourne principal accused of 74 counts of sexual assault Now living in Israel, she says she's "mentally unfit" to be extradited to Australia

Now living in Israel, she says she's "mentally unfit" to be extradited to Australia Prosecutors say mental illness claims a stalling tactic

At a hearing on Sunday at the Jerusalem District Court, attorney Yehuda Fried told Judge Amnon Cohen that former Adass Israel School principal Malka Leifer went into "panic attacks" whenever her court date approached.

"The attempts to extradite her to Australia has put her in a panicked state. Since then she has started to get waves of panic causing depression," Mr Fried told the court.

"Why are we doing this to her?"

It was the seventh court hearing to determine whether Ms Leifer was mentally well enough to be extradited to Australia.

She fled to Israel hours after allegations of sexual abuse first surfaced against her in 2008 and is wanted by Victorian police on 74 counts of sexual assault.

Last September, a Melbourne judge awarded one of Ms Leifer's alleged victims $1.27 million in civil damages for sexual abuse.

The former Melbourne principal is under house arrest in Israel and authorities have been trying to extradite her to Australia for almost two years.

Her case has been plagued by delays, with her lawyers arguing she is "mentally unfit" to attend extradition proceedings.

State prosecutor Avital Ribner-Oron told the court she believed the former principal was "faking" her illness in order to get rid of the case.

"We want the court to look into these issues," she said.

"We are asking you, your honour, to give the district psychiatrist instructions to collect further details on her mental health condition."

Ms Leifer's attorney rejected the accusation she was "faking" her panic attacks, but he did admit in court they only occurred around the time of scheduled court hearings.

Judge calls for psychiatric tests

Judge Cohen declined Ms Leifer's lawyer's request to dismiss the case immediately.

In his official ruling — sent to both parties late on Sunday — he agreed with the prosecution's request for another more intensive psychiatric assessment of Ms Leifer.

In his statement, the judge also questioned the timing of the former principal's hospitalisations.

It emerged that on December 13 last year, Ms Leifer's psychiatrist referred her for hospitalisation, six days before a scheduled hearing date on January 5, 2016.

But the judge said it was not clear why she did not appear at the hospital until January 3, just two days before the hearing, and he asked for this to be explained.

Judge Cohen also pointed out that the psychiatric department head at the hospital Ms Leifer was admitted to indicated that he noted a difference in her behaviour in the ward, in groups and during telephone conversations with her family as compared to her behaviour during formal reviews.

He also noted that Ms Leifer requested to be released from hospital as soon as the court hearing in January was over.

'This is all strategy': Sexual abuse whistleblower want answers

The Australian embassy in Israel is following the case closely.

Australian diplomat James McGarry, the second in charge at the Embassy in Tel Aviv, attended the hearing and was seen speaking to the Israeli prosecutor in charge of the case.

In a statement, Australia's Ambassador to Israel Dave Sharma told the ABC that as the matter remained before the court in Israel "it is the Australian Government's position that it would not be appropriate to comment further".

Child sexual abuse victims' advocate Manny Waks meets with the Australian Embassy's James McGarry. ( ABC News: Sophie McNeill )

Australian-Israeli victim advocate Manny Waks was at the court hearing and protested outside, calling for Ms Leifer to be immediately extradited.

"This seems to be a big game. A strategy on her behalf. We don't need to be Einsteins to work out what is happening here," Mr Waks said outside the courtroom.

Mr Waks blew the whistle on sexual abuse at his ultra orthodox Jewish school and religious centre in Melbourne and also gave evidence to the child abuse royal commission.

Now living in Israel, Mr Waks advocates on behalf of victims of child sexual abuse from within the global Jewish community.

He described Ms Liefer's lawyer's attempts to dismiss the case as "galling" and said the Israeli justice system was becoming a "laughing stock" internationally in regards to this case.

"She is facing 74 charges of child sex abuse in Australia. That is stressful for anyone," Mr Waks told the ABC. "We need to focus much more on the emotional distress of her many alleged victims. Their suffering is immense."

Ms Leifer's lawyer had argued for the court to be closed, arguing that the presence of Australian and Israeli reporters violated the privacy of his client, but the judge rejected the request saying the case was of "international importance".

The next hearing for the case is due on March 20.