AUSTRALIA's most wanted terrorist Neil Prakash has been granted freedom after a Turkish court last night refused to extradite him to Australia, and ordered his release from jail.

The bombshell ruling came in the Kilis Criminal Court when a judge rejected Australia's application to bring the self-confessed Islamic State member to Australia for trial.

Judge Ismail Deniz ordered his release from the Gaziantep H-Type Prison where he has spent the past 27 months fighting extradition.

It came just 10 minutes after the prosecutor said he had no objection to Prakash being returned to Australia for trial.

It was not clear last night what appeal rights, if any, Australia had.

The move means Prakash, 27, a senior member of Islamic State, may never face charges in Australia, where he is accused of recruiting, promoting and financing the terror group and urging attacks on foreign soil.

The Melbourne-born terrorist, who married two wives and fathered at least three children while in Syria, admitted being an ISIS member but denied being a leader and said he was just an "ordinary soldier.''

Prosecutor Bugrahan Konu said earlier said there was no obstacle for Prakash to have his trial in the Australian courts.

"We have checked his file and we notice that he has a hostile action by being a member of a terror organisation in another country,'' Mr Konu said.

"He's been asked by Red Bulletin (Interpol Red Notice) so the extradition demand from the Australian side is appropriate.''

Prakash embarked on an agitated rant in English, Arabic and broken Turkish, saying all laws belong to Allah and he would not be judged by the court, repeatedly saying "Allah rabbimiz'' - which translates roughly to God Our Lord.

Before the judge's ruling, he was asked if he wanted to comment on the prosecutors ruling.

He replied: "Allah, he's the judge, I will never be judged by you.''

He also referred to verses in the Koran, 44, 45, 46 and 47 and referred to an enemy of Allah, saying "he will always be an enemy of Allah''. It wasn't clear who he was talking about.

His lawyer Mehmet Alper Unver said there was now no obstacle for his client not to be released, unless there was another case pending.

Is it not clear if a Turkish domestic investigation against him, which is examining whether he committed crimes against the state of Turkey, remains active.

Prakash has been held in a maximum security jail in the southern city of Gaziantep since he was arrested in October 2016 sneaking across the Syrian border near the town of Kilis.

He is facing charges in Australia of being a member of a terrorist organisation and "incursions into a foreign state with the intention of engaging in hostile activities''.

He is accused of being a prolific recruiter, financier and promoter of the evil group, who recorded propaganda videos and urged attacks on Australian and foreign soil.

Prosecutors announced in May that they were investigating Prakash on local charges, and produced a file with a case number from 2016.

This indicated the investigation had been simmering in the background, but was not announced publicly until the announcement was due on whether or not Prakash would be extradited.

Prakash, who recorded propaganda videos for Islamic State and used social media accounts to urge followers to launch attacks, is the most senior Australian Islamic State terrorist to be captured alive and would have been be the first senior figure to be extradited and charged under legislation introduced in 2015 in response to the threat posed by Islamic State, or Daesh.