Michael Alan Katsidis, 43, pleaded guilty in Brisbane Supreme Court on Thursday to one count of drug trafficking over three-and-a-half months starting in December 2021.
Katsidis won the title of world interim lightweight champion in 2007 and competed for Australia at the Sydney 2000 Olympics.
He was due to be released from custody on Thursday after being sentenced to four years and six months' imprisonment to be suspended immediately due to time previously served.
Two of Katsidis's supporters waited outside Brisbane Supreme Court for about four hours before being told by Corrective Services that he would instead have to serve another 117 days.
Defence barrister Wayne Tolton brought the case back to the Supreme Court on Friday for a review on the basis that the sentence intended for an immediate release.
Katsidis attended court via videolink while wearing a green detainee uniform.
Katsidis was on parole when police identified him via phone intercepts in 2021 as residing at a crime syndicate's safe house to monitor cash and drug levels.
Police raided the safe house in March 2022 and found 8.13 grams of cocaine inside a safe along with $42,850 in cash.
Katsidis was arrested later that month and returned to custody, where he has spent the past 22 months.
A principal legal officer for Corrective Services told the court on Friday that the wording of the sentence on Thursday resulted in Katsidis's parole being retroactively cancelled from the first day of his offending.
The officer said this added 117 days to Katsidis's sentence due to the gap between his first day trafficking drugs in early December 2021 to his return to custody in late March 2022, under section 209 of the Corrective Services Act.
Corrective Services had previously warned the court of this possibility via a note on its certification that Katsidis had previously served 668 days in custody.
Justice Catherine Muir said she would re-open the sentence she had imposed on Katsidis as there had been a "factual error".
"I reached the conclusion that a sentence that was just was one that saw you released ... that did not transpire as I overlooked section 209," Justice Muir said.
She reduced the sentence to two years and eight months' imprisonment to avoid Katsidis being exposed to the possibility of serving too much time in prison if he reoffended.
Justice Muir said she would keep the suspension operational for a period of five years as Katsidis was getting the benefit of a shorter sentence.
Mr Tolton said he "couldn't reasonably quibble" with Justice Muir's proposal, which would have Katsidis released on Friday.
Justice Muir told Katsidis that if he committed an offence punishable by imprisonment within the next five years he would be sent back to custody to serve part or all of his sentence.
"That will be hanging over your head," the judge said.
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