The long court battle to extradite an elderly Perth man to Hungary over an alleged war crime is set to continue, with the matter to be referred back to Home Affairs Minister Brendan O'Connor.

Charles Zentai, 89, is wanted for questioning by the Hungarian government over the murder of a Jewish teenager in 1944.

Last year the Federal Court ruled the Federal Government had made an error in law by agreeing to extradite Mr Zentai to Hungary.

The Commonwealth has appealed against that ruling, and the court on Tuesday upheld parts of its challenge.

Mr Zentai's lawyer says Mr O'Connor will now need to determine what constitutes a war crime before the case can continue.

Mr Zentai, who has been fighting to stay in Australia for more than six years, maintains he is innocent.

His son Ernie Steiner says he is optimistic his father will eventually win his battle to remain in Australia.

"We're still in their batting for an innocent man, that's how we feel and we won't let it go," he said.

"If they were willing to look at the issue of innocence we would have arrived at the conclusion a long time ago."

Mr Zentai can lodge a further appeal in the High Court.

A spokeswoman for the Minister said the Government is considering the full Federal Court's decision.

The Government is not sure how long that process will take.

abc.net.au