NSW is rejecting a push by Malcolm Turnbull to have attorneys-general make decisions about releasing criminals with terror links.
The prime minister will discuss the issue with the states at Friday's Council of Australian Governments meeting in Hobart, following the recent Melbourne hostage incident.
Mr Turnbull says Yacqub Khayre, who shot dead a clerk and took a woman hostage in a Melbourne apartment block on Monday night while on parole, had a history of violence and a connection with extremism.
He wants decisions about parole for people with associations with terrorism - like Khayre - to be made by state attorneys-general.
But NSW Attorney-General Mark Speakman believes politicians shouldn't be making decisions about whether or not people should stay in jail.
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"That's what you have judges for, to make independent decisions," he told ABC radio on Thursday.
The state is already toughening its laws to ensure parole authorities take into account the terrorism connections of prisoners, he said.
"We need to make sure there are no information gaps between state and federal agencies and I think that's a much more fertile ground to explore."
Mr Speakman said in a heightened terror environment some traditional civil liberties have to be reviewed.
"But the idea of a spy agency or a police force making decisions about parole reflects what would happen in a totalitarian state," he said.
