Police said the prisoner, 30, was located at a hotel in the eastern Sydney suburb about 6am on Friday after an extensive search in the area.

"He has been taken to Waverley Police Station and arrangements are being conducted to return him to the correctional facility," NSW Police said in a statement.

The inmate was accidentally released from Long Bay on Thursday.

He was meant to stay in custody after facing court but a paperwork error meant he was allowed to leave Long Bay, the Sydney Morning Herald reported.

The mistake allowed the man to leave the jail on Anzac Parade at Matraville on Thursday afternoon, police said.

NSW Premier Chris Minns said there would be a full review to determine what went wrong.

"There's over 12,000 inmates across Corrective Services in the state ... when you put it against the mid-90s when there was over 100 inmate escapes or accidental releases per year, it's well down," he told reporters in Sydney on Friday.

"But any inmate that's released accidentally or earlier than they should be, is a major concern for Corrective Services and we want to make sure we get it right."

Australian Associated Press