New development in case of Malaysia Airlines passenger allegedly behind bomb hoax that forced flight to return to Sydney Airport

A father who caused chaos at one of Australia's busiest international airports after he allegedly claimed to be carrying a bomb has been barred from boarding another plane after being released on bail.

Muhammad Ali Arif, 45, was dramatically arrested at the Sydney airport in August after his alleged rants to staff and fellow passengers forced the pilot to make a mid-air U-turn on its way to Kuala Lumpur.

Police allege the Canberra man falsely claimed to have had explosives on-board the Malaysia Airlines flight and did not comply with cabin crew's safety instructions before AFP officers swooped in.

After almost four months in custody, Mr Arif was granted bail by Justice Peter Hamill at Sydney's Supreme Court on Tuesday to reside in an isolated town near Deniliquin, 800km from Sydney.

The court was told Mr Arif would reside with a friend in the town of 500 and would work at a supermarket, but would be barred from boarding any planes or coming within 1km of an international airport.

Justice Hamill said that while he doubted that some of the bail conditions were enforceable, Mr Arif was undergoing regular psychiatric treatment and would likely not face trial until early-2025.

Mr Arif smiled as he learned he would be released from Silverwater prison in Sydney's west, with the granting of bail marking the end of a months-long campaign by his lawyer, Oussama Elfawal.

Importantly, Mr Elfawal foreshadowed that Mr Arif's case, while more than a year away from trial, would likely hinge on his mental impairment and how that may impact his culpability.

'Evidence suggests Mr Arif had a mental health crisis leading up to the time of the alleged offence,' Justice Hamill said. 'That is confirmed in three reports now by psychiatrist, Dr Olav Nielssen.'

'Dr Nielssen described the effect and speech patterns during consultation not very long after the incident and came to the conclusion that he had suffered a psychotic episode at the time.'

In his report, Dr Nielssen detailed descriptions of delusional belief as part of Mr Arif's alleged psychosis and said that should be released, 'in the first instance', it should be to a psych hospital.

That belief changed after the final report during which Mr Arif reported being in control of his emotions and no longer felt his thoughts racing, and had been prescribed a mood stabiliser.

The dramatic mid-air turnaround made national headlines earlier this year and sparked chaos at Sydney's busy international terminal, with plane quarantined after landing at the end of the tarmac.

Mr Arif was filmed allegedly telling passengers and staff 'Don't touch my bag it might explode', 'You don't know what I have in here so move back', and asked passengers if they were a 'slave of Allah'.

After returning to Sydney, the 200 other passengers on board were moved to another section of the plane before AFP stormed the aircraft and took Mr Arif, who allegedly continued to resist, into police custody.

In his judgement, Justice Hamill said the prosecution case was a strong one and that the videos of the event previously played before the court create 'a somewhat terrifying picture'.

'That is, from the perspective of the cabin crew and passengers. That is set out in the fact sheet and are depicted graphically in the video played before the court,' Justice Hamill said.

Mr Arif will reappear before Sydney's Downing Centre Local Court in January for charge certification. No please have been entered for either offence, with one punishable only by a fine.