The parole board has said Ian Simms, who was convicted of killing Helen McCourt, is not suitable for release but may be transferred to open conditions.
Former pub landlord Simms maintains he is innocent of the killing.
The Ministry of Justice will make a final decision on the case.
Ms McCourt vanished near her home in Billinge, Merseyside, in February 1988.
Simms was convicted of murder after blood and an earring identical to one Ms McCourt had were found in the boot of his car.
He was given a life sentence with a minimum tariff of 16 years.
Ms McCourt's mother, Marie, is campaigning for a change in the law to ensure killers are not released without disclosing where bodies are buried.
She said: "I've known that this is going to happen for some time. But I hope that they would have told him that, until he reveals where Helen's remains are, he cannot be released."
A petition in support of Helen's Law has been signed by 300,000 people.
Mrs McCourt is due to meet Justice Minister, Mike Penning, on Thursday and hand the petition in to 10 Downing Street.
MP Conor McGinn, MP for St Helens North, has supported the campaign and said the response had been "phenomenal".
"I am sure the Prime Minister will want to listen to Marie, the other families and the public who are all urging him to introduce Helen's Law," he said.
"It's the least the victims and their loved ones deserve."
The Parole Board said the case would be reviewed again in two years' time.
A murderer who has refused to reveal the location of his victim's remains for almost three decades has been recommended for a move to open prison.