A SYDNEY teenager, accused of trying to smuggle heroin-filled condoms into Australia, has been returned to a notorious Hong Kong women's prison after her father failed to have the trainee hairdresser released on bail.

Rachel Ann Diaz, 17, was on the verge of tears as she appeared in the dock alongside her 15-year-old co-defendant, Sydney McDonald's worker Chris Ha Vo, accused of trying to smuggle $1million worth of heroin.

The pair stood in the dock alongside Chinese prostitutes, and Ms Diaz, looking bewildered and nervous, only smiled when she glanced towards her father, who had flown from Sydney to try to win his daughter's release.

At a hearing in a frantically busy courthouse in the heart of Kowloon yesterday, Ms Diaz's father sat in the public gallery with a female believed to be her younger sister.

Ms Diaz kept glancing over and smiling at her father and at one point blew him a kiss. Her father responded to her by crossing his hands over his heart. She never once looked at Mr Vo, who had no family present at the hearing and made no application for bail.

The pair was arrested in a Hong Kong hotel room last week, when police burst into their room and found them with 114 packets of heroin in 5cm-long tied condoms and glove fingers. They were charged with trafficking dangerous drugs.

They were allegedly to be paid $200 for each packet they swallowed, meaning they could have earned $22,800 between them if they had swallowed all the condoms - about one-40th of their $1million street value in Sydney.

However, it emerged yesterday that Ms Diaz was backing out of the deal just before police raided the room the pair had shared for a week at the Imperial Hotel in the Tsim Sha Tsui backpacker district.

A prosecution source told The Weekend Australian: "Vo appeared happy to go ahead but there was a disagreement just as police were about to burst in because Diaz refused to swallow the drugs. She didn't want to go through with it."

A third Australian, 21-year-old Hutchison Tran, was arrested with them in the hotel room. He is understood to have set up the deal on behalf of a Sydney-based Chinese gang and supplied the drugs for them to swallow. He was not in court yesterday and has not applied for bail.

At the hearing in Kowloon City Court, where most cases involve prostitutes from mainland China, Ms Diaz's bail application was dismissed in the space of four minutes by magistrate Ernest Lin.

Ms Diaz's father offered to post bail of $HK10,000 ($1650) in exchange for his daughter's release from the notorious Tai Lam Centre, which is overflowing with mainland prostitutes and female gang members.

An official from a welfare group for Filipino migrants in Hong Kong also appeared in court and offered to post a surety of $HK2000.

Duty lawyer Sam Fu said Ms Diaz would agree to live in a guest house, within a mile of the hotel in which she was arrested, report daily to police and surrender her passport.

However, prosecution lawyer Catherine Yeoh said: "This is a serious offence, the defendant has no address in Hong Kong and there is a risk she might abscond."