The accused, of Sydney's south-west, appeared via video link in the ACT Magistrates Court on Thursday for charges of possessing an offensive weapon with intent and making a reckless threat to kill.

On a previous appearance, his lawyer, Mohamed Bejjaoui, formally entered pleas of not guilty by reason of mental impairment.

The Canberra Times has chosen not to name the defendant due to that plea and his order to comply with a treatment plan.

Police documents previously tendered to the court accuse the defendant of getting into a Parliament House staffer's car about 6pm on June 21, after the worker had finished a shift.

The accused said he was "going to make himself comfortable" before asking the staffer things like "what's your life worth"?

"I'm here to stab someone. If it isn't you, it will be someone else," he allegedly said.

He also allegedly asked where the worker wanted to die and said "I'm a psychopath and I'm off my meds".

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Police documents state the staffer drove around the building, fearing he would be stabbed as the accused pointed a knife with a blade up to 15cm long at him.

The worker eventually spotted some Australian Federal Police protective service officers and flashed his high beams at them before pulling up alongside them and explaining the situation.

According to police, the officers spoke to the accused through the car window and he handed them the knife at their request.

"While talking with the defendant, he stated that he wanted to talk to Scott Morrison," the police documents state.

"He would not elaborate on what he wanted to speak to the prime minister about.

"[He] only stated that the matter was classified and above the AFP [officers'] pay grade."

The court on Thursday heard the ACT Civil and Administrative Tribunal (ACAT), which assessed the accused's mental health, and treating doctors found he was ready to be released and not be "returned to the mental health unit [at Canberra Hospital] involuntarily".

The assessments found the accused's risks had diminished since he was arrested in June and that his mental illness was "in remission presently" .

In granting bail, magistrate James Stewart said it appeared mental ill health rather than criminality drove the alleged offending.

"There is no reason using their [health professionals] tools and rules that he should be involuntarily detained because of his mental illness," Mr Stewart said.

"I don't have the ability to overrule that professional view."

The bail conditions include residing in Bonner with a family friend, complying with a psychiatric treatment order, not being within 500m of parliament and having police check on him at any time.

"If you're found in the community [allegedly] with a knife, you won't get bail again," Mr Stewart said.

Earlier in the hearing, the prosecutor argued against bail on the likelihood of reoffending and likelihood of endangering the community because the accused had not adhere to a treatment order in NSW.

The matter will come before the court again on September 8.

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