Turkish court has rejected Australia's request to extradite notorious Islamic State terrorist Neil Prakash in a shock ruling overnight that could see him released from jail unless Turkey decides to prosecute him.

Who is Neil Prakash? Neil Prakash, 27, is of Fijian-Indian and Cambodian background, and attended Melbourne's controversial Al-Furqan Islamic Centre after converting

Neil Prakash, 27, is of Fijian-Indian and Cambodian background, and attended Melbourne's controversial Al-Furqan Islamic Centre after converting He is believed to have left for Syria in 2013, where he changed his name to Abu Khaled al-Cambodi and was put on a US kill list

He is believed to have left for Syria in 2013, where he changed his name to Abu Khaled al-Cambodi and was put on a US kill list Prakash was linked to several Australian-based attack plans and calls for lone-wolf attacks against the US

Prakash was linked to several Australian-based attack plans and calls for lone-wolf attacks against the US He has also appeared in IS propaganda

He has also appeared in IS propaganda Paul Maley, the national security editor of The Australian newspaper, said Prakash was "a lonely lost sort of a guy, he was a gang member, he had a problem with drugs, he was a failed hip hop artist"

The judge made the ruling in the Kilis Criminal Court in southern Turkey, two months after Prime Minister Malcolm Turnbull said he expected the self-confessed, Melbourne-born IS member to be extradited to face trial in Australia "within months".

Prakash has been held in a maximum-security jail in Gaziantep, in southern Turkey, since he was captured in October 2016 trying to sneak across the border from Syria using fake identity papers.

The self-confessed Islamic State member, also known by the alias Abu Khaled al-Cambodi, was described by former attorney-general George Brandis as "the principal Australian reaching back from the Middle East into Australia".

According to senior counter-terrorism officials, Prakash was a pivotal figure inspiring and encouraging terrorist plots in Australia.

He appeared in IS propaganda urging attacks in Australia and has been linked by the FBI to a failed plot to attack the Statue of Liberty in New York.

Prakash is the subject of an Australian Federal Police arrest warrant for "membership of a terrorist organisation", "advocating terrorism", "providing support to a terrorist organisation" and "incursions into foreign countries with the intention of engaging in hostile activities".

Neil Prakash appears in court via video link. ( ABC News )

In the Kilis court last night, the Turkish prosecutor called for Prakash to be extradited to Australia.

When asked for his response by the court, Prakash launched into an attack on the judge in a mix of English, Arabic and Turkish.

"Allah is the legislator, not him," he said.

"He is not a judge, he is the enemy of Allah and he will always be the enemy until he repents."

In his verdict, Judge Ismail Deniz rejected the prosecutor's request for extradition, saying the conditions for the extradition had not been made available to the court.

Outside court, Prakash's lawyer Mehmet Alper Unver told journalists there remained no obstacle to his client being released from jail, unless there was another charge or indictment against him.

Foreign Minister Julie Bishop said the Government was disappointed the request for extradition had been rejected but said Australia would continue to engage with Turkish authorities as it considered appealing against the decision.

"We will also continue to follow the case related to Prakash's ISIS activities when the court reconvenes in September," Ms Bishop said.

Australian security sources say they see positive signs that Turkish authorities are intending to prosecute Prakash

They indicate they would prefer him to be dealt with in Turkey rather than be returned to Australia, but say they would renew efforts to extradite him if he was not jailed in Turkey.

Prime Minister Malcolm Turnbull said the Government was determined to keep Prakash "behind bars".

"Our goal is to ensure that Neil Prakash is never able to practise his evil trade of terrorism ever again," Mr Turnbull said.

Sorry, this video has expired Dutton says he's happy to see Prakash 'rot in jail' in Turkey

Home Affairs Minister Peter Dutton said he would be happy to see Prakash "rot in jail in Turkey".

In May, prosecutors told the court that Turkish authorities had launched a criminal investigation into Prakash which had recently been completed.

At the time, his lawyer said Prakash could be jailed in Turkey if he was sentenced as a result of the investigation.

The matter was not raised in court overnight and there was no immediate word from Turkish authorities on whether they would prosecute him.

The judge is yet to release his reasons for the verdict.

In his final words to the court, Prakash said: "Democracy is not legitimate. Islam is justice."