Malaysian national Chiew Seng Liew - who shot Dr Chang dead in Sydney in 1991 - was granted parole last week and is due to be freed from jail after October 3 and deported.
But the NSW government announced on Sunday it would ask the Supreme Court to review the State Parole Authority's decision.
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Mr Smith says it is in public interest to keep Liew, 69, behind bars, even though his lawyer says he's suffering from Parkinson's and dementia, and will eventually end up back in Malaysia.
"There's no sign of any rehabilitation or contrition by this man and this was a grossly bad murder, one that really rocked the community," Mr Smith told reporters.
"We feel we have a public duty to keep him there (in jail) as long as we can."
Mr Smith was unable to say how much the legal review would cost, but said the state government did not pay "top dollar" for its lawyers.
He acknowledged that keeping Liew in prison would potentially cost taxpayers more in hospital bills and jail costs.
But he said the "harm" caused by Chang's murder meant the government had a duty to challenge the parole decision.
Liew has served 21 years of his maximum 26-year sentence and was first eligible for parole last year.
He is due to be deported to Malaysia soon after release and the NSW government says it has concerns about his supervision there.
The NSW Supreme Court will be asked to review the decision as a matter of urgency, with hearings possibly this week.
Chang, who built a worldwide reputation as a brilliant heart surgeon, was gunned down in Mosman in 1991 during a failed extortion attempt.
asked to consider the issue as a matter of urgency.
