The man at the centre of the Melbourne siege was released from jail late last year despite lighting a fire in prison, because the rest of his behaviour was considered good enough to get parole.
Yacqub Khayre's release also came in spite of a reform - made after Adrian Bayley murdered Jill Meagher - that could have kept him behind bars until October 2017.
He shot and killed Chinese-born Kai Hao and held an escort hostage before dying in a hail of bullets in suburban Brighton on Monday night.
Khayre, who was in prison for a violent 2012 home invasion, set two fires while in custody.
The second fire, at Barwon Prison in February, 2015, was in the second half of his sentence and he was handed extra jail time as punishment before being paroled in December, 2016.
But a 2013 review of the system from former High Court Justice Ian Callinan recommended a prisoner be denied parole if they do not behave satisfactorily for at least the second half of their jail time.
The measure was implemented as practice in April 2015, but not made law.
That technicality means the Adult Parole Board took the fire into account, but wasn't bound by law to keep Khayre in jail.
"The board has a broad discretion about how it takes this information into account," it said in a statement to AAP on Thursday.
"Following the incident on 21 February 2015, the board deferred its consideration on whether to grant Mr Yacub Khayre parole for a further 18 months.
"There were no adverse incidents reported after February 2015, and the board was informed that Mr Khayre had shown a considerable period of good behaviour."
A spokesman for Corrections Minister Gayle Tierney said the previous coalition government accepted all of the Callinan recommendations, but left it up to the Labor government to implement.
But opposition corrections spokesman Edward O'Donohue told AAP the parole board hadn't followed through with that recommendation correctly.
Victoria Police now has five specialist police squads investigating Monday's terror attack that left three officers wounded and Khayre and Mr Hao dead.
"I feel like my world has ended and I can't describe how sad I feel right now," Mr Hao's mother told reporters through an interpreter on Wednesday.
"I have to say I hate that terrorist who has tore my family apart."
The hostage, a 36-year-old escort, was tied up at one point during the siege, before she was rescued from the ground floor apartment.
One Special Operations Group officer needed surgery to remove shotgun pellets in his face, while another had surgery for a serious injury to his hand.
The 29-year-old Khayre was in a deradicalisation program run by the Islamic Council of Victoria which was funded to take up to 22 people each year
He once spent 16 months on remand before being acquitted of a 2009 terror plot on Sydney's Holsworthy army base.