© Provided by Australian Broadcasting Corporation Malka Leifer is wanted in Australia on 74 charges of child sex abuse. (ABC News: Sophie McNeill) An Israeli court has granted bail to former Melbourne principal Malka Leifer as she fights extradition to Australia where she is accused of sexually abusing her female students.

A judge in Jerusalem ruled Ms Leifer, 52, should be released to her sister's house and remain under the supervision of five ultra-orthodox Jewish women.

The former headmaster of the Adass Jewish School faces 74 counts of sexual assault in Victoria.

She fled to her native Israel in 2008 when allegations of inappropriate behaviour involving a student first surfaced.

Australia filed an extradition request, and the mother of eight was then arrested by Israel police in 2014.

Ms Leifer was released on bail and managed to avoid multiple extradition hearings, claiming she suffered from panic attacks and was too unwell to leave her home and face the court.

However, she was jailed last year after private investigators obtained videos of her living normally in an orthodox Jewish settlement, shopping and socialising.

In five years of court hearings, 30 psychiatrists have already been involved in determining if she is faking her illness to avoid extradition.

Psychiatrists are expected to submit a final report on Ms Leifer's mental fitness in December.

Lawyers for the State of Israel have two days to appeal the bail decision before Malka Leifer is released.

'Massive betrayal of justice'

One of Ms Leifer's alleged victims, Dassi Erlich, told ABC Radio Melbourne she was outraged at the latest development.

"We are just reeling. I don't have any words. I think this is a huge, massive betrayal of trust in this whole process of supposed justice," Ms Erlich said.

"We absolutely think that she is a flight risk and our biggest worry is that now that she's under house arrest, that we will never see her again.

"It just seems like this is never going to end."

Ms Erlich and her two sisters allege they were abused by their principal between 2001 and 2008.

They said they were unaware they were all being molested by their headmistress for many years.

Ms Erlich sued the Adass Jewish School in 2015, and was awarded $1.27 million in damages against the school and Ms Leifer.

Her sister Nicole Meyer said she felt "let down" by the courts.

"Just last week the judge herself wasn't making a clear ruling on whether Malka Leifer was fit to stand trial, yet all of a sudden she's fit to walk out of jail and go under house arrest," Ms Meyer said.

"Should that not be a clear indication that she can now come on a plane to Australia? Because that's all that is needed, from Israel, is to put her on a plane and for Australia to take care of the justice process from then on."