Justice Bernard Bongiorno intended to send Peter Andrew White, 45, to a secure area at the mental health facility Thomas Embling Hospital at Fairfield.
White was found not guilty in March of murdering 45-year-old Stephen Hatton on the grounds of mental impairment.
In a bizarre attack at the Ascot Vale house the two men shared, White hit Mr Hatton 15 times with a hammer, and wrote on paper and walls with what appeared to be blood.
The beating took place on the night of April 18, 2005. White rang 000 early the next morning and indicated that he had killed a man.
Later, he said he used a hammer, and that he was looking for a robot in Mr Hatton.
Justice Bongiorno fixed a nominal 25-year detention period for White, who has been diagnosed with paranoid schizophrenia.
Two psychiatrists testified that White did not know and could not reason that his conduct was wrong.
Justice Bongiorno said in the Supreme Court this week that White had been in custody since his arrest in 2005.
He said he had no alternative but to keep White in prison until a hospital bed became available, possibly in eight to 10 weeks.
"(White) has no moral or legal culpability in respect of Mr Hatton's death. He is ill and should be treated as such, " Justice Bongiorno said.
He said continued imprisonment of White appeared to be against the spirit, if not the letter, of Victoria's charter of human rights and responsibilities, which came into force last year.
"This state of affairs is unsatisfactory, and ought to be looked to by the executive as a matter of some urgency." Justice Bongiorno added.
"It is not the first time this situation has arisen and it ought to be remedied as soon as possible."
Comment is being sought from the Department of Human Services.