Adriana Elcira Rivas emigrated to Australia in the late 1970s and worked as a nanny in Bondi before she was arrested by the NSW Police in 2019 at the request of Chile.
She has been in custody for the past seven years as she repelled attempts to extradite her to the South American nation to face trial for seven counts of aggravated kidnapping.
Rivas, now in her 70s, is accused of participating in the disappearances of seven people - including a woman who was five months' pregnant - while working in Augusto Pinochet's secret police force.
She denies the allegations and says her extradition to Chile should be blocked because it would result in her being tried for crimes against humanity.
The charges against her have been mischaracterised in the extradition request, her barrister Sean Baron Levi told the Federal Court on Tuesday.
"The offence which will ultimately be prosecuted may well be referred to as aggravated kidnapping … but it will also and most importantly be classified as a crime against humanity," he argued.
He previously suggested the classification meant Rivas could theoretically face the death penalty, but hastened to add there was no suggestion that was being sought.
But the barrister for the Australian government noted the death penalty was abolished for ordinary crimes in Chile in 2001.
"It cannot seriously be suggested that Ms Rivas' extradition - should it occur - will relate to the application of the death penalty," Trent Glover SC told the court.
Under the extradition agreement, the Chilean government cannot prosecute the elderly woman for any offences other than the kidnapping charges which it clearly laid out in its request, he said.
The classification of the offences as crimes against humanity provides context for the kidnapping charges but doesn't change their character, Mr Glover argued.
Rather, he said, it explains why Rivas can face prosecution for aggravated kidnapping in Chile decades after the expiration of the time limit for bringing such charges.
But the crimes against humanity element means that the kidnapping allegations are different from charges that were available in the 1970s, Rivas' barrister contended.
The offence must have been illegal in both Chile and Australia at the time of the alleged offending for the extradition to proceed.
"If the offence is ultimately an offence that didn't exist … at the time of the alleged commission, then there is an obligation not to surrender," Dr Baron Levi said.
A decision on Rivas' extradition will be handed down at a later date.
Families of Chileans who vanished or were killed during Pinochet's rule packed the courtroom for a second consecutive day, clutching photos of their missing loved ones.
Tens of thousands of Chileans came to Australia after the dictator violently overthrew Chile's elected socialist government with a coup in 1973.
About 40,000 people were killed, tortured or imprisoned for political reasons before the end of his ruthless reign in 1990.
