Peter Liddy, 83, is due for release on June 4 after serving his 25-year sentence for child sexual offences in South Australia between 1982 and 1986.
SA Attorney-General Kyam Maher has applied to the Supreme Court for Liddy to either be indefinitely detained, or the subject of an extended supervision order.
Liddy's lawyer Jeff Powell SC had applied for a stay on those applications, which Justice Rachael Gray refused on Wednesday, meaning the applications would proceed.
Instead, she said it was "appropriate for the protection and safety of the community" that Liddy be released on home detention and subject to an intensive supervision regime for an initial period of six months.
Justice Gray imposed restrictions on Liddy's internet access and banned him from contacting children.
He must also wear an electronic transmitter, not consume alcohol or drugs, or possess a firearm.
To make a decision on the applications for indefinite detention or extended supervision, the court now requires reports from two medical experts on whether Liddy is unwilling or incapable of controlling his sexual instincts.
At a hearing earlier in May, Mr Powell said that in 2019, the Crown sought a report from their "trusted and hand-picked expert", forensic psychiatrist Craig Raeside, on whether a similar detention application should be filed.
On Wednesday, Justice Gray said she had noted that both parties considered Dr Raeside to be an appropriate person to conduct an assessment.
"The evidence before this court supports that view," she said.
The matter will return to court on November 18 for further argument on the applications.
A spokesperson for Mr Maher said the government's priority was the safety and protection of the community "and we've taken every step available to us".
"We welcome the court's decision to dismiss Liddy's application to permanently stay proceedings," the spokesperson said.
"The court has ordered expert medical reports to address whether Liddy is willing and able to control his sexual instincts.
"These reports are essential in determining whether he will be detained indefinitely."
Liddy was jailed in 2001 for a minimum of 18 years for sexually abusing four boys while working as a coach at Brighton Surf Life Saving Club and for offering to bribe one of the victims.
His previous bids to be released on parole have been rejected.
Parole Board chair Frances Nelson has said the board "doesn't feel comfortable that he's still not a risk to the community".
"He victim blames, and has no empathy for his victims," she said.
1800 RESPECT (1800 737 732)
National Sexual Abuse and Redress Support Service 1800 211 028
Lifeline 13 11 14
Kids Helpline 1800 55 1800 (for people aged 5 to 25)
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